Understanding the linkage-dependence structure between oil and gas markets: A new perspective

Abstract

With the acceleration of the low-carbon transition process, the increasingly complex oil-gas relationship poses serious challenges to the economic development and energy security of countries around the world. In this context, this paper innovatively proposes the frequency domain decomposition attribution framework named CEEMDAN-JADE-RT and systematically analyzes and quantifies the intrinsic mechanism of the development and evolution of linkage-dependence structure between crude oil and natural gas markets. The empirical results show that there are various complex risk characteristics in the oil-gas relationship accompanied by significant regional differences and mutational structures. In terms of the intrinsic mechanism, the abrupt change of oil-gas relationship can't be completely attributed to outburst events. Overall, the transformation of supply and demand dominates the evolution of oil-gas relationship in the Middle East, contributing 39.84% on average. Major outburst events dominate the evolution of the relationship between oil and gas markets in China, Japan, Northwest Europe and the United States, with an average contribution of 48.42%, 39.12%, 37.04% and 38.86% respectively. In addition, speculation also has a significant impact on the change of oil-gas linkage dependency relation, with an average contribution of 25.44%–35.88%. These results are of great significance for energy policy formulation and risk management.