Abstract
The course of events since 2014, including the worldwide pandemic of a coronavirus disease, have shown that oil market fundamentals have not always been clearly anticipated and that additional external factors, rather than those related to supply and demand, do play important roles in signaling future price changes. Within that complex setting, this study examined the influences of structural breaks on the long-term properties of Brent crude oil, gasoil, low-sulfur fuel oil, natural gas, and coal over the period 2002–2018. In an effort to assess the impacts of these structural changes, we identified time points at which structural break changes occurred and unit root properties using a representative variety of unit root testing alternatives. From the estimation results, we observed that only fuel oil and national balancing point (NBP) prices show evidence of mean-reverting behavior, suggesting that shocks to these two markets are short-lived when allowing for structural breaks. Although the idea of market forces bringing the non-renewable markets to their equilibrium in the long run makes the role of policy-making more challenging, it highlights the importance of the policy mix in the transition to a low-carbon energy system.
Highlights
In competitive markets with multiple sellers and buyers, prices are mostly driven by supply and demand, with price itself providing signals to ensure market equilibrium
This study considers six time series, namely, crude oil Brent (Brent), gasoil (GO), low-sulfur fuel oil (LSFO), average Spanish gas import prices (SGP), national balancing point (NBP), and coal prices, This study considers sixvariables time series, namely, crude around oil Brentthe (Brent), gasoil (GO), low-sulfur fuel and all of which except
The structure of deterministic terms included in the maintained regression will influence the asymptotic distributions of the unit root test statistics
Summary
In competitive markets with multiple sellers and buyers, prices are mostly driven by supply and demand, with price itself providing signals to ensure market equilibrium. The strong push from governments to allow a smooth transition between an era dominated by fossil fuels and one focused on a low-carbon economy will continue to influence non-renewable pricing structures to reflect environmental attributes and energy-related megatrends. Within this framework, the study of patterns in the energy time series becomes of great interest. This study assesses stochastic properties of the three energy commodities that account for the majority of global energy demand, i.e., crude oil, coal, and natural gas, in addition to gasoil and fuel oil, using a comprehensive approach In this sense and to the best of our knowledge, this paper is the first that addresses a systematic review of endogenous testing procedures for non-renewable energy prices
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