Plunge In Oil Prices Research Articles

Impact of Oil Prices on Consumer Spending: Evidence from Malaysia

The main aim of this study is to examine the impact of oil prices on consumer spending. This study highlights the theoretical underpinning of the literature that focuses on the impact of oil prices on consumer spending in the context of Johor Bahru, Malaysia. In this study, the semi-structured interview was used to collect data from the general consumers. The consumer selection was based on the convenience sampling and survey questionnaires were distributed to 35 respondents in Johor Bahru. In addition, the data was collected from 30 respondents for feedback, and used 25 responses on the basis of complete information for analysis. Further, this study used the thematic analysis. The findings highlighted that the change in oil price have high impact on the lower and middle-income group consumers. On the other hand, high-income group consumers have little impact on the consumer spending. Furthermore, results of the study have important implications for future practice. It provides policy direction and practical implications to the organizations, consumers, and researchers. Based on research, the main focuses should be on the improvement of living standards of the average consumers as the oil prices influence on consumer spending to highlight their spending behavior. The coronavirus pandemic worsened the consumer spending all over the world (World Data Bank, 2020). Therefore, for future research work, it would be interesting to do research on plunge in oil prices and consider the measures implemented by Malaysian governments as lockdown are expected to reduce the consumer spending of Malaysian economy in 2020.

Value investing versus other investment strategies: A volatility spillover approach and portfolio hedging strategies for investors

Motivated by the incessant demand for portfolio diversification, this study examines the connectedness between value and diverse types of stocks (growth, momentum, ESG, high beta, classic S&P 500, volatility). The applied methodology encompasses the time-varying parameter vector autoregressive (TVP-VAR) extension of the Diebold and Yilmaz (2012) framework for the period from 03/31/2011 to 03/31/2021. Results show moderate volatility transmissions among the sampled assets, which tend to escalate during periods of turmoil, such as the European Sovereign Debt Crisis, the plunge in oil prices and the COVID-19 outbreak. Growth and ESG stocks play an indispensable part in the transmission mechanism. Moreover, we investigate the hedging ability of value stocks within a portfolio containing other stocks, by estimating hedge ratios and optimal weights with the usage of conditional variance estimates (DCC-GARCH). The empirical findings reveal that value stocks can adequately hedge against the risk deriving from the volatility of the remaining investment instruments, especially in the case of high beta and volatility stocks. Thus, this analysis provides portfolio managers and investors with valuable insights in order for them to hedge their stock portfolios effectively.

Symmetric or asymmetric: how is Nigeria's bilateral trade balance responding to oil price and exchange rate changes?

PurposeThe experience of rising trade imbalance between Nigeria and its key trading partners in recent years motivated this study. Previous studies on this issue either ignored bilateral level or assumed that the effect of crude oil price and/or exchange rate changes on trade balance is symmetric. Consequently, this study investigates whether Nigeria's bilateral trade balance with Belgium, China, United Kingdom (UK) and USA is responding symmetrically or asymmetrically to changes in oil price and exchange rate.Design/methodology/approachThe authors used nonlinear autoregressive-distributed lag (NARDL) model that decomposed oil price and exchange rate into partial sum processes of positive and negative changes over the period 1999Q1–2019Q4.FindingsThe study finds that the effects of oil price hike and plunge asymmetrically influence Nigeria's trade balance with the UK and USA. Further evidence indicated that oil price plunge exerts greater influence than price hike in all the cases, except the UK in the long run. Furthermore, Nigeria's trade balance responds asymmetrically and significantly to changes in exchange rate with China in the long run and with China and the UK in the short run. Specifically, the depreciation effect is more prominent than appreciation.Originality/valueSignificant contributions to the existing literature in Nigeria include the recognition that the effects of oil price and exchange rate changes on trade are asymmetric and the disaggregation of trade into bilateral level to identify country-specific effect.

COVID-19 and GCC stock market performance: an analysis of the boon (financial stimulus package) and curse (oil price plunge) effects

PurposeThis study aims to investigate the reaction (in terms of returns and volatility) of Gulf Cooperation Council (GCC) country-wise stock markets (both conventional and Islamic) in response to the surge of COVID-19 cases, with special reference to the announcement of financial stimulus packages in each country and the recent global oil price plunge. Further, the study also examines the impact of COVID-19 cases on the stock market returns of each GCC country and the continuous dynamics of correlation between COVID-19 cases and GCC stock markets.Design/methodology/approachThis study uses an exponential generalized auto regressive conditional heteroskedasticity model and continuous wavelet coherence to estimate the stock market volatility and co-movement between COVID-19 cases and stock returns.FindingsEmpirical findings indicate an adverse reaction (negative returns and high volatility) during the period examined, with the stimulus package resulting in a positive transformation of returns in each country-level stock market as well as the regional stock index. Further, no evidence of an adverse effect of the oil price plunge is identified. All findings are identical between both conventional and Islamic stock indices.Originality/valueWhile ample research has been conducted on the impact and dynamics of the pandemic on stock markets, little has addressed the areas of financial stimulus packages and the oil price plunge. The findings of this study show that further research needs to be conducted to elucidate the ways in which effective financial stimulus packages can be formulated in the GCC region to mitigate the adverse effects of COVID-19 for economies without causing major financial deficits, as well as to find strategies to diversify economies away from the oil curse.

Policy Uncertainty, Oil Price, Stock Market and Precious Metal Markets Volatility Spillovers in the Russian Economy

The Russian economy is emerging, meaning that natural resources play a dominant role in economic development. Given the considerable volatility in resource prices, we investigate the volatility spillovers among policy uncertainty, international oil prices, exchange rate, stock index and metal prices covering the period of 2 July 2008 to 15 May 2020 for the Russian economy applying Dynamic Connectedness based on Time-Varying Parameter Vector Autoregression (TVP-VAR). Our empirical investigation demonstrates that gold price, Russian policy uncertainty, oil price and stock index are net volatility contributors, whereas palladium, platinum, silver and exchange rate are net volatilities receivers. Market capitalisation and silver market are found to be the highest net contributor and net receiver, respectively. The palladium appears as a net volatility receiver initially, just after the global financial crisis. The Russian economic policy uncertainty appears to be the dominant volatility contributor from 2008 to 2014, but onward it turned to be a net volatility receiver. Over the year 2014, gold price was the prominent volatility contributor to another market when the oil price dropped significantly. The total connectivity of the markets are highly anchored with several exogenous shocks, including economic sanction, adoption of floating exchange rate, oil price plunge. Our empirical findings provide several policy implications to portfolio managers and Russian regional stakeholders.

Continuous Improvement Practices in Manufacturing Companies in the Sultanate of Oman

Purpose The aims of this study were to identify Continuous Improvement (CI) practices prevailing in the manufacturing companies with regards to Visual Management, Employee Engagement, Leadership and Risk Management; to identify continuous improvement tools that have been adopted by the manufacturing companies; and to analyze the critical success factors for implementing CI practices in manufacturing companies. Design/methodology/approach For this study, a survey questionnaire was used to collect the CI practices information from manufacturing companies in Oman. 146 samples were collected from 75 manufacturing units selected at random from the Public Establishment for Industrial Estate database. The data was analysed for reliability, robustness, ranking tests using Statistical Package for Social Statistics (SPSS). Findings The majority of the manufacturing firms were using only the CI program for the past five years. However, there was not substantial cost savings for these businesses. The overall sales increased, while the average processing time had declined and the product recalls also had increased. The most important factors identified for the effective implementation of CI in industrial firms were effective communication, top management encouragement, and employee involvement and conducive organization atmosphere. Social Implications Sultanate of Oman like any other GCC countries is undergoing a critical phase in economy because of the oil price plunge combined with ongoing COVID-19 pandemic. The paper will be of use to academics, researchers and continuous improvement practitioners. Originality/value So far, very few studies have been conducted in analyzing the factors correlated to CI in the Omani context and no study was carried out before in exploring the CI application in the Sultanate of Oman.

Coherence, extreme risk spillovers, and dynamic linkages between oil and China’s commodity futures markets

This paper investigates the time-frequency dependence, extreme risk spillovers, and dynamic linkages between oil and China’s commodity futures markets, using wavelet coherence, quantile connectedness approach, and the DECO-FIAPARCH (1,d,1) model. The results suggest that the oil market exhibits higher coherence with the copper, natural rubber, and fuel oil futures but low coherence with corn, soybean, soybean meal, and white sugar futures on a long-term scale. The crude oil market leads most of China’s commodity futures. The results of the DECO model point to the time-varying and low average equicorrelations between oil and China’s commodity futures. The total risk connectedness at the extreme lower quantile level (0.01) is higher than the conditional mean and conditional median level. WTI oil, Brent oil, soybean oil, and copper futures are the main spillover net-transmitters whereas the white sugar, soybean, soybean meal, cotton, corn, aluminum, natural rubber, and fuel oil futures are risk spillover net-recipients. The dynamic extreme negative risk spillovers are highly volatile and vulnerable to major international events such as the GFC, oil price plunge, and the COVID-19 pandemic. Finally, Brent oil offers better portfolio diversification benefits than WTI oil and the optimal-weighted portfolio illustrates the highest risk and downside risk reduction effectiveness.

Trade Policy Issues of Oil-rich but Land-locked Country Case: Focusing on Kazakhstan Post-WTO Entry

Purpose The economic recession of Kazakhstan coincided with its World Trade Organization (WTO) membership. Some experts claim that the membership exacerbated the recession further. This paper tries to assess whether the WTO entry hurt the economy of Kazakhstan. Design/Methodology/Approach The paper collects Kazakhstan’s tariff commitments to WTO members from the World Integrated Trade Solution (WITS) and WTO official websites. It then aggregates the data in terms of region and economic sectors. The Global Trade Analysis Project (GTAP) Computable General Equilibrium (CGE) model is employed to simulate the trade liberalization and the oil-price shock scenarios. Findings The economic modeling underlines that the WTO membership is not a cause for the economic recession of Kazakhstan. Instead, Kazakhstan’s GDP and welfare rose as a result of WTO entry. In contrast, the oil price plunge, as well as Kazakhstan’s involvement in Customs Union (CU), deteriorated the terms of trade and declined the economic growth. Research Implications This research is the first attempt to assess the effects of Kazakhstan’s WTO membership using the GTAP CGE model. It shows that Kazakhstan’s WTO entry was the right step toward global integration. It also signals that Kazakhstan should diversify its economy, export structure, and trade route in order not to face the next economic recession due to an unexpected energy price plunge.

Execution of the Federal Budget In January-April 2020: Budget Surplus Is Due to Non-Tax Revenues Growth

We analyze dynamic of budget receipts, federal budget expenditures and assets in the National Wealth Fund for January-April 2020. Over the period, the federal budget was executed with a surplus, however one should remember that oil and gas revenues reflect the changes on the market the same month and the plunge in oil prices was offset by the currency sale taken from the NWF and non-oil and gas revenues lag behind in their reaction towards the change in the tax base by a quarter. Provided that retail sales and industrial output declined against the previous months of the corresponding period of 2019, one should project decline in proceeds from VAT and income tax in Q2 and Q3 2020.

Coronavirus Disease 2019 and the Global Economy

Using daily data on the coronavirus disease 2019 (COVID-19) cases from China and the rest of the world, this paper investigates the corresponding effects on the global economic activity. The empirical results based on a structural vector autoregression model using crude oil prices (COP) and the Baltic Exchange Dry Index (BDI) are consistent with increases in COVID-19 cases acting as negative demand shocks in the global economic activity (reflected as reductions in COP) and negative supply shocks in the global transportation of commodities (reflected as increases in BDI). The historical decomposition results further suggest that the effects of COVID-19 cases on COP and BDI have been mostly observed in the early COVID-19 period.

Migration Processes in the Western Regions of Kazakhstan: Potential Government Measures to Mitigate Negative Consequences of the Current Economic Crisis

The migration situation in Kazakhstan is one of the most complex ones in the World. The current oil price plunge, which started in mid-2014, has seriously affected the oil-dependent Kazakh economy as well as the social sphere in general and the migration situation in particular. This article starts with a general overview of the migration situation in the country, studies the correlation between changes in real GDP and balance of migration and then addresses the migration processes in the Western oil-producing regions of the country. The paper specifically addresses these regions because they are more attractive, as half of all foreign labor force officially working in the country is employed hereas well as most of the illegal and in-country migrants. Alsowe should not omit one very important factor – in the oil producing regions of the country the relations between the local population and labor migrants are traditionally strained. Over the last 30 years there were many cases of social unrests and clashes between Kazakh and foreign workers. These facts show how important this problem is and that neglecting it by businesses, government entities and the local population can provoke further social problems. The article analyzes potential consequences of the current oil plunge on migration dynamics and recommends actions to be taken by government entities to mitigate the resulting negative consequences.

Oil prices and corporate high-yield spreads: Evidence from panels of nonenergy and energy European firms

This paper explores the potential impacts of oil prices on high-yield corporate bond spreads for the case of European nonenergy and energy corporate samples from 14 countries and spans the period from 2000–2016. The findings document the presence of a positive link between oil prices and the high-yield spreads in the case of nonenergy firms and a negative link between oil prices and the high-yield spreads in the case of energy firms. Moreover, the analysis investigates the potential asymmetries in the above association for the case of nonenergy firms prior to and after July 2014, a month that signified the beginning of a serious oil price plunge. The new results illustrate that the effects of oil prices on high-yield spreads in the case of nonenergy firms are nonlinear, with the effects in the pre-July 2014 regime being statistically insignificant. Meanwhile, in the post-July 2014 regime, oil prices exert positive and statistically significant effects on yield spreads. In other words, although the plunge in oil prices was considered to result in a substantial decline in the operational costs for nonenergy firms, it made investors more risk averse due to the lower asset prices and thus increased the yield spreads for these firms.

World Economic Prospects Monthly

Overview: A solid 2019, despite the soft end to this year ▀ While the global economy looks set to end this year on a soft note, we still see the expansion regaining some momentum in 2019 and attach only a 5% probability to a global recession next year. Overall, we still see global GDP growth slowing to 2.8% in 2019 from 3.0% (0.1pp lower than last month) in 2018. ▀ The Q3 GDP figures from the advanced economies made fairly dismal reading. Admittedly, US growth only slowed marginally on a quarterly basis, and remains comfortably above potential, but Germany, Japan and Italy, among others, all contracted. Nonetheless, apart from Italy, these contractions appear to be explained by one‐off factors – as a result, we see growth rebounding in Q4, with only Italy entering recession. This is supported by the recent stabilisation of composite PMIs after their slide in Q3. ▀ China has also slowed and a further loss of momentum is likely in the short term as the effects of recent policy loosening take time to filter through to the real economy. Emerging market GDP growth has softened too and the generalised tightening in financial conditions suggests that the slowdown may continue. ▀ But the US and China slowdowns reduce the risk of destabilising imbalances building that would add to medium‐term downside risk. US growth is also likely to remain above trend and thus broadly supportive for the global outlook. A silver lining to US growth moderation may be a weaker US dollar – we expect the euro to rise to $1.20 by end‐2019 – which would, other things being equal, support global trade and should also boost EM growth via financial market and financial balance sheet channels. ▀ Finally, the oil price plunge over recent months may provide a fillip for global growth via lower inflation. We now expect the oil price to rise gently in 2019 to about $65pb by year‐end, well below our previous forecast of $73pb. Not only will this boost households' real incomes, but it may also temper central banks' plans to raise rates.

Nizozemska bolest u Bolivarijanskoj Republici Venezueli

Ever since its independence, Venezuela has based its economy on the manufacturing and export of a single product. In the 19th century, those products were cocoa and coffee beans, which were replaced by oil in the 20th century. This led to the Dutch disease which harmed other sectors of the economy, so the often corrupt governments bought social peace with socialist policies and government spending. During the 1980s, the first significant plunge in oil prices in the 20th century forced the Venezuelan government to conduct liberal reforms in order to receive assistance from the International Monetary Fund. These led to a significant decline in the standard of living and GDP, as well as, mass protests. Due to the popular discontent, the 1998 presidential elections were won by Hugo Chavez, a former military officer and the leader of the failed coup, who used the rebound in oil prices to start socialist reforms and economic recovery. Expropriations of privately owned assets and price controls weakened the domestic economy and led to inflation, while the rise in government spending strained the public finances. The big drop in oil price in 2014 caused the collapse of Venezuelan economy as well as social and political crisis. The data used in making this paper is from the Venezuelan government and its departments and institutes, as well as from the United Nations, the World Bank, other organisations and Venezuelan and foreign newspapers and web portals.

The U.S. Shale Oil Revolution and the Behavior of Commodity Prices

The United States is committed to technological improvements in horizontal drilling and hydraulic fracturing in its drive of toppling the world's leading oil producers by the mid-2020s and evolving into a net oil exporter by 2030. Consequently, these technological innovations revolutionized the U.S. oil sector and the international oil market with increasing relevance of the shale oil and attendant shock spillovers to financial and commodity markets. Upon these attractions and consistent with evidence in the literature, we trace the oil price and commodity price dynamics to the shale oil revolution using a recursive structural VAR model of the shale supply shocks. In line with the standard practice of ensuring sensitivity of results, we conduct analyses such as impulse responses, forecast-error variance decomposition, and historical decompositions to accommodate energy and nonenergy commodity components. We show, in addition to the popular view in the extant literature, that the shale oil revolution is not only associated with the recent oil price plunge, but also responsible for the tumble in the total energy-based commodity prices with crude oil price being just a component.

Iraq

This 2017 Article IV Consultation highlights a double shock facing Iraq as a result of the conflict with the Islamic State and the plunge in oil prices. In 2016, real GDP increased by 11 percent owing to a 25 percent increase in oil production, which was little affected by the conflict with the Islamic State. Falling oil prices have driven the decline in Iraq’s international reserves from $54 billion at the end of 2015 to $45 billion at the end of 2016. Medium-term growth prospects are positive. Growth will be driven by the projected moderate increase in oil production and the rebound in non-oil growth supported by the expected improvement in security and implementation of structural reform.

E&P Notes (August 2017)

E&P Notes Round Two in Mexico: 10 More Offshore Fields Awarded Trent Jacobs, JPT Digital Editor The first tender of the second round of Mexico’s oil and gas licensing auctions issued 10 awarded areas to more than a dozen different oil and gas companies. In addition to Mexico-headquartered companies, other winning firms hail from Russia, Malaysia, US, and the Netherlands. Five locations received no bids, including some that were understood to be gas-rich and therefore a challenging investment due to the relatively low-cost gas imports coming from the US. Growing Number of Projects Go Forward, but the Global Backlog is Still Building Stephen Rassenfoss, JPT Emerging Technology Senior Editor There are recent signs of life in the exploration sector, with as many delayed projects getting funding during the first half of 2017 as in all of 2016. A report from consultancy Rystad Energy tempers that assertion by describing the jump in the number of delayed projects getting a final investment decision (FID) as “apparent positive momentum.” On the upside, it reported 17 delayed international projects have received an FID since it started tracking the many delayed projects in 2015 in the wake of the oil price plunge. The development cost of those projects is expected to be USD 78 billion. H2O Midstream-Encana Deal Highlights Water Management Role in US Shale Joel Parshall, JPT Features Editor H2O Midstream’s recent acquisition of produced-water infrastructure from Encana Oil & Gas (USA) in the Permian Basin highlights the growing importance of efficient water management in United States shale plays. The acquisition, announced on 14 June, was concurrent with the execution of an acreage-dedication-based midstream water services agreement, under which H2O Midstream will gather, dispose, and deliver for reuse produced water for a substantial portion of Encana’s acreage position in Howard County, Texas. By terms of the acquisition, H2O Midstream will now own and operate Encana’s existing produced-water gathering system that consists of more than 100 miles of interconnected pipeline and five saltwater disposal wells with a total permitted disposal capacity of 80,000 BWPD. First Oil From Kraken: Offshore Project To Increase UK Production by 15% Trent Jacobs, JPT Digital Editor UK-based EnQuest achieved the delivery of first production from the Kraken offshore oil field on Friday, 23 June. Average production from the heavy-oil project is expected to reach 20,000 B/D of oil by year’s end. Located almost 80 miles to the east of the Shetland Islands, the Kraken field holds an estimated 128 million bbl of reserves, according to EnQuest. The independent explorer has so far drilled and completed 13 wells, seven producers and six injectors. US Crude Oil and Petroleum Products Exports Doubled Over Past 6 Years Pam Boschee, Senior Editor Following the loosening in December 2015 of US restrictions on exporting domestically produced crude oil, the US exported an average of 520,000 B/D, reaching 1.1 million B/D in February— the highest monthly level on record. Crude oil and petroleum product gross exports more than doubled over the past 6 years, increasing from 2.4 million B/D in 2010 to 5.2 million B/D in 2016, according to the US Energy Information Administration.

Oil prices and the global economy: Is it different this time around?

The recent plunge in oil prices has brought into question the generally accepted view that lower oil prices are good for the US and the global economy. In this paper, using a quarterly multi-country econometric model, we first show that a fall in oil prices lowers interest rates and inflation in most countries, and increases global real equity prices. The effects on real output are positive, although they take longer to materialize (around 4 quarters after the shock). We then re-examine the effects of low oil prices on the US economy over different sub-periods using monthly observations on real oil prices, real equity prices and real dividends. We confirm the perverse positive relationship between oil and equity prices over the period since the 2008 financial crisis highlighted in the recent literature, but show that this relationship has been unstable when considered over the longer time period of 1946–2016. In contrast, we find a stable negative relationship between oil prices and real dividends which we argue is a better proxy for economic activity (as compared to equity prices). On the supply side, the effects of lower oil prices differ widely across the different oil producers, and could be perverse initially, as some of the major oil producers try to compensate their loss of revenues by raising production. Taking demand and supply adjustments to oil price changes as a whole, we conclude that oil markets equilibrate but rather slowly, with large episodic swings between low and high oil prices.

How resource nationalism hinders development: the institutional roots of the economic recession in Venezuela

How do institutions allow governments to manage dramatic variations of oil rents, and how do these variations impact public institutions is the twofold problem addressed here. We contend that high dependence on oil combined with low political accountability increases the economic vulnerability to external shocks. We sustain our argument with the analysis of the fiscal policies implemented in Venezuela under the administration of Hugo Chávez (1999-2012). A process tracing methodology focuses on the policy design of fiscal policies through the selection of instruments embedded in the Public Finance Management system (PFM), using a typology of the state´s resources of information, authority, treasure and organization. During this period, the constitutionalization of the resource nationalism acted as a trigger to change fiscal policies through four major reforms including the creation of a highly centralized PFM, the takeover of the Central Bank, the reform of oil legal framework and the takeover of the national oil company, PDVSA. All of these reforms converged towards the elimination and/or manipulation of the instruments of political accountability, allowing discretional management of oil rents and hampering the government´s capacity to react to the oil price plunge, which ultimately led to the current economic recession.

Oil Prices and the Global Economy

The recent plunge in oil prices has brought into question the generally accepted view that lower oil prices are good for the United States and the global economy. In this paper, using a quarterly multi-country econometric model, we first show that a fall in oil prices tends relatively quickly to lower interest rates and inflation in most countries, and increase global real equity prices. The effects on real output are positive, although they take longer to materialize (around four quarters after the shock). We then re-examine the effects of low oil prices on the U.S. economy over different sub-periods using monthly observations on real oil prices, real equity prices and real dividends. We confirm the perverse positive relationship between oil and equity prices over the period since the 2008 financial crisis highlighted in the recent literature, but show that this relationship has been unstable when considered over the longer time period of 1946–2016. In contrast, we find a stable negative relationship between oil prices and real dividends which we argue is a better proxy for economic activity (as compared to equity prices). On the supply side, the effects of lower oil prices differ widely across the different oil producers, and could be perverse initially, as some of the major oil producers try to compensate their loss of revenues by raising production. Taking demand and supply adjustments to oil price changes as a whole, we conclude that oil markets equilibrate but rather slowly, with large episodic swings between low and high oil prices.