Abstract
Our study combines machine learning techniques and dynamic moving window and expanding window methods to predict crises in the US natural gas market. Specifically, as machine learning models, we employ extreme gradient boosting (XGboost), support vector machines (SVMs), a logistic regression (LogR), random forests (RFs), and neural networks (NNs). The data set used to develop the model covers the period 1994 to 2019 and contains 121 explanatory variables, including those related to crude oil, stock markets, US bond and gold futures, the CBOE Volatility Index (VIX) index, and agriculture futures. To the best of our knowledge, this study is the first to combine machine learning techniques with dynamic approaches to predict US natural gas crises. To improve the model’s prediction accuracy, we applied a suite of parameter-tuning methods (e.g., grid-search) to select the best-performing hyperparameters for each model. Our empirical results demonstrated very good prediction accuracy for US natural gas crises when combining the XGboost model with the dynamic moving window method. We believe our findings will be useful to investors wanting to diversify their portfolios, as well as to policymakers wanting to take preemptive action to reduce losses.
Highlights
To date, four international energy crises have occurred: The oil crisis of 1973, caused by the Middle East War; the Iranian oil crisis of 1979, caused by the Islamic Revolution; the 1990 oil crisis, caused by the Gulf War; and the energy crisis in 2008 caused by the financial crisis
Extreme we propose a dynamic moving windowa and expanding that regression (LogR), a random forest (RF), and a neural networks (NNs) as machine to incorporates extreme gradient boosting (XGboost), a support vector machinelearning (SVM),methods a logistic predict
For the best performing model, XGboost, we found that the false alarms do not exceed 25%, and the highest hit rate is 49%
Summary
Four international energy crises have occurred: The oil crisis of 1973, caused by the Middle East War; the Iranian oil crisis of 1979, caused by the Islamic Revolution; the 1990 oil crisis, caused by the Gulf War; and the energy crisis in 2008 caused by the financial crisis. In addition to being a subsystem of the national economy, the energy system incorporates the petroleum, coal, natural gas, and power economy. Birol [1] showed that the 2008 global financial crisis caused the energy demand in most countries to decrease, leading to the energy crisis. Imbalances between energy supply and demand are still the root cause of rising energy prices, and high energy prices were an underlying cause of the financial crisis. Compared with fossil fuel oil and coal, natural gas is a more environment friendly and green clean energy. Natural gas has gained an increasingly prominent role in the global energy market. People always use the settlement prices at the Henry Hub as benchmarks for the entire North American natural gas market and parts of the global liquid natural gas (LNG) market
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