Shale Oil Revolution Research Articles

Analyzing Overnight Momentum Transmission: The Impact of Oil Price Volatility on Global Financial Markets

Fluctuations in oil prices substantially impact both the real economy and international financial markets. Despite extensive studies on oil market dynamics and overnight momentum, a comprehensive understanding of the link between oil price changes and energy market momentum, as well as their broader influence on global financial markets, remains elusive. This study delves into the intricate mechanics of overnight momentum transmission within financial markets, focusing on its origin in oil price fluctuations and its overarching impact on market dynamics. Employing the quantile VAR method, we analyze daily market data from 3 January 2014 to 17 January 2024. This study emphasizes the significance of overnight momentum on the transmission of volatility, particularly in the tails of the distribution, and highlights the necessity for efficient strategies to govern financial stability. The shale oil revolution, COVID-19, the Russia–Ukraine war, and the Israel–Hamas conflict have significantly impacted the interconnectivity of financial markets on a global scale. It is crucial for policymakers to give priority to the monitoring of the energy market to reduce risks and improve the resilience of the system.

Asymmetric connectedness and investment strategies between commodities and Islamic banks: Evidence from gulf cooperative council (GCC) markets

The study uses the data of thirteen Islamic Banks (IB) in the GCC region and sixteen commodities that include soft agriculture, energy, industry, and precious metal commodities. Murabaha transactions makes up most of the revenues of the Islamic banks, whereas commodities set up the biggest portion of the assets among Murabaha transactions, therefore commodities and IB revenues are expected to comove. Interestingly, empirical findings suggest that most of the Islamic banks and commodities are not significantly affected by the shocks from other markets. We further observe that negative shocks have a higher impact on market connectedness among used assets compared to the positive returns and find a significant role of risk variables in explaining the magnitude of spillover between used assets. We perform robustness of our results in sub-samples periods during Shale Oil Revolution, Global Financial Crisis, and the COVID-19. Additionally, the multivariate portfolio analysis shows some risk reduction properties of the majority of the used assets. The performance evaluation measures demonstrate that weights selected based on dynamic connectedness network presents diversification opportunities. These findings help investors and portfolio managers to remain alert to the movements of the risk factors and calibrate there hedging and portfolio management strategies by taking long and short positions as incorporation of Islamic banks and commodities in the GCC region in a portfolio could yield risk reduction benefits and profitability.

Bank equity returns and oil prices: The story from U.S. regional banks during the “shale oil” revolution

Using monthly data from 1998 to 2020, we examine the relationship between equity returns and oil prices employing a multi-factor asset model to a sample of 124 U.S. regional banks classified by levels of oil exposure based on their headquarters’ location. We utilize the period when fundamental changes in innovation undertaken by the U.S. oil and gas industry (known as “shale”, “fracking” or “tight oil” formations) helped the U.S. to become today’s top world oil producer. We split our sample into pre (1998M1 to 2009 M12) and post (2010M1 to 2020M1) “U.S. shale oil revolution” periods. In the initial period, oil price changes have negative impact on equity returns of regional banks with no effects for the national bank sample. In the second period, we find very strong oil price effects on equity returns for the top 10 and top 5 regional bank subsamples, consistent with more local transactions to the energy sector. Quantity effects of changes in oil production are discussed, as well as several robustness checks for asymmetries, threshold values, and inclusion of dividends in total returns.

Downside risk connectedness between Islamic sectors and green bond markets: implications for hedging and investment strategies

ABSTRACT This study explores the relationship between the green bond and Islamic sectoral markets in terms of downside risk. A new framework was developed using CAViaR and QVAR techniques to construct hedging and portfolio strategies. Results show higher levels of downside risk connectedness and spillover across different risk environments, with short-run connectedness outperforming long-run. The downside risk connectedness and spillover are time-varying, influenced by major events like the Shale Oil Revolution, US–China trade war, COVID-19 pandemic, and Russo-Ukrainian conflict. Green bond market indices of China, the European Union, the US, and the global market receive net shocks in moderate and higher downside risk environments across various frequencies. US and global green bonds exhibit net transmitter roles in a downside-risk environment. Islamic Sectors BM, OG, FIN, CG, and HC are shock transmitters, while TELE and UTL are shock receivers across different downside risk environments and frequencies. Net roles are CS, INDUS, and TECH, subject to the downside risk environment and frequencies.

Tail risk spillover effects in commodity markets: A comparative study of crisis periods

This research aims to investigate the propagation of extreme downside risk, commonly referred to as tail risk, within commodity markets using an innovative CAViaR-based connectivity model. We also evaluate the influence of various crises, including the global financial crisis, the shale oil revolution, the COVID-19 pandemic, and the Russia-Ukraine conflict, on the dynamic relationships among seventeen different commodity markets. Our findings reveal a diverse pattern of interconnections among these markets during distinct crisis periods. Surprisingly, we observe that the nature of these interconnections is remarkably similar during geopolitical and health crises. Notably, the spillover effects between different commodity categories are more pronounced during the COVID-19 pandemic and the Russia-Ukraine conflict than during the global financial crisis and the shale oil revolution. However, it is important to note that the total risk spillovers are more substantial during the global financial crisis. Furthermore, our analysis delves into the unique characteristics of each market, revealing that precious metals can function as a safe haven for both energy and industrial metals during times of economic turbulence.

Tail risk spillovers between Shanghai oil and other markets

This paper uses daily returns data from January 2011 to December 2022 to analyse the tail risk spillovers between Shanghai oil and a sample of stock and commodities markets. The computed CAViaR measures each market's tail risk and analyses the connectedness network using the TVP-VAR method. The tail risk spillover network estimates reveal clustering—as stocks and commodities within the same category are vigorously connected. Shanghai oil's links to the global markets remain limited, but it is a net risk receiver. As such, Shanghai oil is a lesser player in the global financial system than WTI or Brent. Nevertheless, (tail risk) connectedness between Shanghai oil and sample markets soars during crises such as the shale oil revolution, the COVID-19 pandemic, and the Russia-Ukraine war. Among the crises, COVID-19 has had the most potent effect on our markets—with connectedness indicators exceeding 70%. The spillover size and shape differ considerably by crisis events. Thus, Shanghai oil futures may be viewed as a novel financial market that permits both domestic and international investors to access the Chinese crude oil market and diversify their investment risk.

Carbon emissions, fracking, and firm value of U.S. oil and gas firms

AbstractWe examine in this paper how firm value (market‐to‐book ratio, MTB) of U.S. oil and gas sector firms from 2010 to 2020 responds to carbon emissions intensity measures. We investigate three measures comprising total carbon emissions relative to assets, to market value of equity, and to net property, plant, and equipment. Our dynamic panel data approach separates the 82 firms into 35 fracking and 47 non‐fracking companies to address features underlying firm financing during the shale oil revolution. Concerned investors about the companies' large carbon emissions may have pulled out of the sector. These companies may also have overleveraged when expanding into new technologies of oil production or kept larger cash flow ratios. We report lower average carbon emissions for fracking firms, together with the larger size of fracking techniques: mean of assets of $46 billion for fracking versus $12 billion for non‐fracking companies. Using fixed‐effects and system generalized methods of moments (SGMM) models, we find that carbon emissions decrease MTB of fracking firms more than non‐fracking firms. Our dynamic panel approach provides a more accurate measure of the real effect of carbon emissions that is very robust to Tobin's q as alternative measure of firm value.

Exploring downside risk dependence across energy markets: Electricity, conventional energy, carbon, and clean energy during episodes of market crises

This study examines the relationship of extreme downside risk in various energy markets, including electricity, clean/conventional energy, and carbon markets during several episodes of market turmoil (i.e., Global Financial Crisis, Shale oil revolution, COVID-19 outbreak and the Russian-Ukrainian war). The analysis combines the CAViaR and TVP-VAR techniques, covering the period from August 2005 to May 2023. The results reveal significant interdependencies between electricity and clean energy markets during times of market turmoil. Moreover, the study identifies the transmission of extreme downside risks in periods of crisis. Additionally, we find that including carbon and conventional energy assets in a portfolio with electricity and clean energy can offer diversification benefits. The analysis of net downside risk transmission shows that the crude oil market acts as a net receiver of shocks, while the alternative electricity market functions as a transmitter. Investors and policymakers can leverage these findings to develop appropriate measures that mitigate the adverse effects of extreme downside risk spillovers in different crises.

Revisiting WTI–Brent spread and its drivers

We made two key contributions to energy economics and finance by revealing new insights on the WTI–Brent spread (WBS). Our first exercise engages with the stylized facts of the WBS and its role as an indicator, identifying the time around the shale oil revolution as a turning point in the mean- and persistence-based shifts in the spread's time-series properties. The second exercise delves into the fundamental connection between the WBS and key US-based and international market factors. We utilized three sets of explanatory factors, representing demand, supply, and uncertainties. The data for this study were sourced primarily from Refinitiv Eikon and EIA, spanning from 1988 to 2020. The results affirmed demand-side variables to have predictive power for widening spreads, whereas supply-side factors, such as oil rig counts, trans-US pipeline flow, and import from Canada, contributed to spread shrinkage. This finding specifically held in robustness check using quantile-based regression. Supplementary causality tests revealed that economic conditions contain greater causal influence than market-based indicators, suggesting that the spread traders respond more to fundamental drivers than financial sentiments.

Analyzing the network structure of risk transmission among renewable, non-renewable energy and carbon markets

The linkage of renewable, non-renewable energy and carbon markets is increasing, and there is a complex network structure for the risk transmission among multiple markets. Based on the methods of network topology analysis and DY spillover index, this paper analyzes the time-varying spillover effect and network structure of risk transmission among renewable, non-renewable energy and carbon markets. The results show that: according to the static spillover index, there are significant spillover effects among renewable, non-renewable energy and carbon markets, and they are asymmetric. Moreover, the total spillover index further shows that the spillover effect between energy and carbon markets is time-varying, especially during the extreme events. Specifically, the net spillover index shows that the spillover effects among renewable, non-renewable energy and carbon markets are bidirectional, asymmetric and time-varying. Additionally, under the influence of various extreme events, the spillover effect and network structure of risk transmission among renewable, non-renewable energy and carbon markets are heterogeneous. Compared with the shale oil revolution and the Sino-US trade dispute, the influence of COVID-19 is more significant and complex, and it is long-term and comprehensive. Finally, some policy implications for preventing risk transmission and optimizing the energy structure to promote emission reduction are put forward.

The shale oil revolution and the global oil supply curve

SummaryWe focus on the implications of the shale oil boom for the global supply of oil. In order to derive testable implications, we introduce a simple stylized model with two producers, one facing low production costs and one higher production costs but potentially lower adjustment costs, competing à la Stackelberg. We find that the supply function is flatter for the high cost producer and that the supply function for shale oil producers becomes more responsive to demand shocks when adjustment costs decline. On the empirical side, we apply an instrumental variable approach using estimates of demand‐driven oil price changes derived from a standard structural VAR of the oil market. A main finding is that global oil supply is rather vertical, with a short‐term elasticity around 0.05. A rolling sample reveals that the shale oil boom does not appear to have fundamentally changed the contours of global oil production, but there is evidence for the oil supply curve to become more vertical in Saudi Arabia and more price responsive in the United States.

Pore Structure Characteristics and Affecting Factors of Shale in the First Member of the Qingshankou Formation in the Gulong Sag, Songliao Basin.

A major historical breakthrough has been made in the exploration of the GK (the first member of the Qingshankou Formation (K2qn1), Gulong Sag) shale oil of the Songliao Basin. However, few reports have been reported on the pore structure characteristics of this large-scale lacustrine medium–high maturity shale. In addition, the difference between the pore structure characteristics of the GK shale and medium–low maturity marine/continental shale is unknown, and the affecting factors of pore development are still unclear. Therefore, in order to clarify the pore structure characteristics of the GK shale and its affecting factors, this study characterized them experimentally and revealed the law of pore evolution using the mineral composition and geochemical analysis, microscopic observations, and pore quantification techniques. Results indicate that (1) the pore system of GK shale reservoirs is divided into micropores (pore diameter < 10 nm), mesopores (10 nm < pore diameter < 50 nm), and macropores (pore diameter > 50 nm); (2) the pore structure of the GK shale is mainly affected by the clay content, siliceous mineral content, and thermal maturity; and (3) when the content of clay minerals and siliceous minerals in the GK shale reservoir is high, and ∼0.8% < Ro < ∼1.4%, the storage capacity and oil content of the GK shale show high values, and it can be considered as a strong candidate for further exploration and development. This research can push the shale oil revolution to a new height and is significant to promote the development of the petroleum industry.

The Impact of Energy Transition on the Geopolitical Importance of Oil-Exporting Countries

With the changes that have taken place in energy-related technologies, the United States has been less affected by the geopolitical risks associated with the supply of fossil fuel energy resources, especially crude oil. When the price of oil is low, the geopolitical situation of U.S. energy contrasts with that of other oil-producing countries, which are facing financial pressure due to low oil prices and a high domestic energy demand. Many other countries have been supplying crude oil compared to half a century ago, reducing the strategic importance of major oil exporters, such as key OPEC members in the Persian Gulf. The shale oil revolution in the United States and the transition of energy in countries around the world to more sustainable energy sources, especially renewable energy, have reduced the importance of security in the Arab states of the Persian Gulf for U.S. politicians, which will be intensified in the future. Especially from the middle of the Carter administration period, U.S. politicians saw the security of the Arab states of the Persian Gulf as a prerequisite for securing energy supplies for the U.S. economy, but that has changed. Despite the disruption of Russia’s fossil fuel energy supply, as one of the main energy suppliers, due to sanctions from February 2022, the global energy carriers’ prices are relatively under control. Energy transition is one of the main contributors to lowering the impact of fossil fuel energy supply disruptions on the global economy.

Return and volatility spillovers between energy and BRIC markets: Evidence from quantile connectedness

Using the quantile connectedness approach for the median, lower, and upper quantiles, we examine the return and volatility connectedness between energy and BRIC markets from January 1, 2000, to July 9, 2021. We find that uncertain economic activity and intense periods characterize energy and BRIC market returns and volatility connectedness. A parallel return and volatility connectedness structure for upper and lower quantiles against the average quantile revealed different results. Time-varying features are substantiated between energy and BRIC markets; significant distress events, such as the Global Financial Crisis, European Debt Crisis, Shale Oil Revolution, and COVID-19 pandemic, intensified spillovers. We highlight diversification avenues for energy and BRIC markets given the periods of financial turmoil, with investors’ concerns widely addressed by opt-in investment opportunities with lower risk and greater diversification. Our study has beneficial implications for policymakers, regulators, investors, and financial market constituents to redevelop their existing strategies to avoid financial losses.

The USA’s Shale Oil Revolution: OPEC Strategies and Oil Prices War in Global Economy

Background: At the beginning of 2020, the Covid-19 pandemic attacked the world and affected the continuity of the world economy. This condition also causes oil prices to decline further. OPEC plans a strategy to realize its role as a regulator of the world oil trade. Not only the global economy but the stock market is also affected by the decline in oil prices. Production of shale oil in the United States lowered OPEC oil prices, coupled with economic conditions during the Covid-19 pandemic which worsened the international economy. Aim: The authors examined changes in oil prices due to United States’ shale oil. Method: The qualitative method and literature review were employed in this study. The information was compiled from a variety of documents and other sources. Findings: The United States reduced its reliance on OPEC imports, which resulted in lower OPEC oil prices due to an oversupply and decreasing demand. Along with the Covid-19 epidemic, not only is the global economic collapse growing worse, but the decrease in oil prices in early 2020 is getting worse as well. Finally, the world economy suffered a downturn, which impacted the international capital market.

Information transmission in regional energy stock markets.

Since markets are undergoing severe turbulent economic periods, this study investigates the information transmission of energy stock markets of five regions including North America, South America, Europe, Asia, and Pacific where we differentiated the regional energy markets based on their developing and developed state of economy. We employed time–frequency domain from Jan 1995 to May 2021 and found that energy stocks of developed regions are highly connected. The energy markets of North America, South America, and Europe are the net transmitters of spillovers, whereas the Asian and Pacific energy markets are the net receivers of spillovers. The results also reveal that the connectedness of regional energy markets is time and frequency dependent. Regional energy stocks were highly connected following the Asian financial crisis (AFC), global financial crisis (GFC), European debt crisis (EDC), shale oil revolution (SOR), and COVID-19 pandemic. Time-dependent results reveal that high spillovers formed during stress periods and frequency domain show the higher connectedness of regional energy stock markets in the short run followed by an extreme economic condition. These results have significant implications for policymakers, regulators, investors, and regional controlling bodies to adopt effective strategies during short run to avoid economic downturns and information distortions.

The Role of Non-Traditional Energy Sources In Enhancing Energy Security In The USA and Its Expected Implications For Iraq

Non-traditional energy sources are continually evolving and boosting output to the point that they may eventually compete with conventional energy sources. It is necessary to reduce its imports of crude oil and natural gas, notably Iraqi oil, To increase the United States' energy security. Therefore, energy security is a critical issue globally, especially in the United States of America. The energy security issue is proven by the rising demand for energy in exchange for the supply available. The study's objective is to educate students on energy security while also highlighting the US economy and energy balance. It intends to investigate the development of non-traditional energy sources and their consequences for the future production and pricing of conventional energy in the United States and around the globe. It attempts to analyze and understand the shale oil and shale gas revolution's impact on Iraq's oil exports and income. The findings demonstrate that the shale oil and gas revolution and the substantial and unanticipated increases in their production have contributed significantly to the United States of America's solid security. It will diminish worldwide demand for oil and gas, lowering global prices in the short and medium-term, particularly oil prices, which would have a detrimental effect on the Iraqi economy

Modeling world oil market questions: An economic perspective

The choice of a modeling approach is driven by the oil policy or market question that needs to be addressed. We provide the non-modeling community with insightful information on oil market models, shedding light on the economic interpretation of technical aspects (such as the meaning of the costs associated with certain types of constraints), but without introducing any mathematical formulations. We also emphasize the reasonings and assumptions underlying the modeling structures and solutions proposed in the literature. We first review how models have usually represented market fundamentals. We then examine recent modeling developments addressing market issues (such as the impact of the shale oil revolution and the shift in producers’ behavior) and policy questions (such as the use of spare capacity to stabilize prices, the lifting of export controls, and the management of uncertainties surrounding the energy transition) that have emerged since the Great Recession. Moreover, given that climate policies increase the interdependency of all energy markets, we discuss how long-term multi-fuel models produce scenarios for oil as part of the global energy mix. We also suggest ways to tackle questions not yet covered by the oil market modeling literature, such as the dependence of government budgets on oil revenues.

CHINA’S EVOLVING ENERGY SECURITY STRATEGY

This article explores the ways in which China's energy security strategy has evolved over the past fifteen years. Energy security had become an urgent policy priority for Beijing by the mid-2000s due to China's rapidly increasing oil import dependency set against the backdrop of oil scarcity and rising oil prices. Rather than rely on purely market-based means to secure oil supply, China pursued a state-led or neomercantilist approach. Initially, the most notable and distinctive element of its oil neomercantilism was the overseas acquisition of oil assets by China's national oil companies (NOCs) under broad strategic direction from Beijing. However, increasingly over the past decade China's energy security strategy, while remaining neomercantilist in orientation, exhibits greater reliance on the market. Reasons for this shifting emphasis include the changing geopolitics and geoeconomics of the global oil industry, which moved to oversupply following the US shale oil revolution, along with transformations within the Chinese state under the leadership of President Xi Jinping.

COVID-19 and time-frequency connectedness between green and conventional financial markets

Against the backdrop of the exponentially growing trend in green finance investments and the calls for green recovery in the post-COVID world, this study presents the time-frequency connectedness between green and conventional financial markets by using the spillover models of Diebold and Yilmaz (2012) and Baruník and Křehlík (2018). Covering a sample period from January 01, 2008, to July 31, 2020, we aim to explore the dynamics of connectedness between conventional and green investments in fixed income, equity, and energy markets. Additionally, we determine the role of market-wide uncertainty in altering the connectedness structure by performing a subsample analysis for the ongoing COVID-19 pandemic crisis period. Our results show that competing energy investments are not connected, and there is only one-way spillovers from the conventional bonds in the fixed-income investments. Additionally, we observe a low (high) intergroup connectedness for conventional (green) investments. Moreover, the frequency-based analysis shows that connectedness between these competing markets is more pronounced during the short-run. The subsample analysis for the pandemic crisis period shows similar results except for the disconnection between bond markets in the short-run frequency. Our time-varying analysis shows peaks and troughs in the connectedness between climate-friendly and conventional investments that suggest different global events such as the Eurozone Debt Crisis and Shale Oil Revolution drives the association between alternate investments. Similarly, we observe an enhanced connectedness during the recent COVID-19 period, suggesting that financial stability would be a significant factor in determining the smooth transition to green investments.