COVID-19 and the Energy Price Volatility

Apostolos G Christopoulos,Konstantinos Vergos,Ioannis Katsampoxakis,Petros Kalantonis

doi:10.3390/en14206496

Apostolos G Christopoulos, Konstantinos Vergos + Show 2 more

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https://doi.org/10.3390/en14206496

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Abstract

The challenges of the world economy and their societies, after the outbreak of the COVID-19 pandemic have led policy-makers to seek for effective solutions. This paper examines the oil price volatility response to the COVID-19 pandemic and stock market volatility using daily data. A general econometric panel model is applied to investigate the relationship between COVID-19 infection and death announcements with oil price volatility. The paper uses data from six geographical zones, Europe, Africa, Asia, North America, South America, and Oceania for the period 21 January 2020 until 13 May 2021 and the empirical findings show that COVID-19 deaths affected oil volatility significantly. This conclusion is confirmed by a second stage analysis applied separately for each geographical area. The only geographical area where the existence of correlation is not confirmed between the rate of increase in deaths and the volatility of the price of crude oil is Asia. The conclusions of this study clearly suggest that COVID-19 is a new risk component on top of economic and market uncertainty that affects oil prices and volatility. Overall, our results are useful for policy-makers, especially in the case of a new wave of infection and deaths in the future.

Highlights

It is expected for someone to think that there is no connection between a pandemic and the energy industry
The current study investigates the relationship between COVID-19 infection and death announcements with oil price volatility
Our analysis considers existing economic uncertainty and stock market uncertainty in this relationship to disentangle the effects of these uncertainties from that of COVID-19 deaths and infection announcements

Summary

Introduction

It is expected for someone to think that there is no connection between a pandemic and the energy industry. The main feature of this pandemic was its rapid and unprecedented negative impact on economic activity and in particular the spread of great uncertainty worldwide. It was expected for this uncertainty to combine with financial turmoil pushing companies and individuals in taking precautionary measures. Their first measure was to decrease their spending to be able to face impending difficulties if necessary

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