Abstract

The COVID-19 pandemic storm has struck the world economies and energy markets with extreme strength. The goal of our study is to assess how the pandemic has influenced oil and gas prices, using energy market reactions in the United States and Japan. To investigate the impact of the COVID-19 cases on the crude oil and natural gas markets, we applied the Auto-Regressive Distributive Lag (ARDL) approach to the number of the US and Japanese COVID-19 cases and energy prices. Our study period is from 21 January 2020 to 2 June 2020, and uses the latest data available at the time of model calibration and captures the so-called “first pandemic wave”. In the US, the COVID-19 pandemic had a statistically negative impact on the crude oil price while it positively affected the gas price. In Japan, this negative impact was only apparent in the crude oil market with a two-day lag. Possible explanations of the results may include differences in pandemic development in the US and Japan, and the diverse roles both countries have in energy markets.

Highlights

  • Paul Krugman [1] recently stated: “Let’s be clear: we knew or should have known, that something like COVID-19 was going to happen” and it did

  • To investigate the impact of the COVID-19 cases on crude oil and natural gas markets, we applied the Auto-Regressive Distributive Lag (ARDL) approach proposed by Pesaran et al [50] on the number of US and Japanese COVID-19 cases and energy prices

  • The two models at the top of the table illustrate the results of the effects of US COVID-19 cases on US crude oil and natural gas prices

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Summary

Introduction

Paul Krugman [1] recently stated: “Let’s be clear: we knew or should have known, that something like COVID-19 was going to happen” and it did. It slammed into the world economy with extreme strength. The International Monetary Fund [2] forecasts that global economic growth is projected at −4.9% in 2020 with significant differences between developed and developing nations. In the former, economic growth is expected to decrease by −8%, and by −3%. The deepest anticipated changes in 2020 are observed in the Eurozone (−10.8%), and to be severe in both Italy and Spain (at −12.8%). In the US, which has experienced more daily active cases than Europe since 2 July 2020, economic growth is expected to decrease by −8%

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