The Exposure of European Union Productive Sectors to Oil Price Changes

Abstract

Oil is one of the most important products in the world, being used for fuel production but also as an input in several industries. After the oil shocks of the 1970s, which caused great turbulence, the interest in the analysis of this particular product grew. The analysis of the comovements between oil and other assets became a hot topic. In this study, we propose an analysis of how oil price correlates with several industry indexes. The detrended cross-correlation analysis coefficient (ρDCCA) is used, with data from 1992 to 2019, and we analyze not only the correlation between oil and several Euro Stoxx indexes during the whole sample, but also how that correlation evolved for the different decades (1990s, 2000s and 2010s). Naturally, oil and gas are the sectors that correlate the most with crude oil, with correlation coefficients reaching levels higher than 0.6 in some cases. However, the results also indicate that all sectors are now more exposed to oil price variations than in the past, with the financial sector as one of the sectors with the greatest increase in correlation.Sustainability 2020, 12, 1620 2 of 16 importance for the economy as a whole, but also because price shocks are common, having an impact on the economy. Moreover, and because oil is not only a very important raw material but also a non-renewable resource, the study of its behavior, in this case the comovements of its price with stock markets, could go towards a better understanding of how financial stock markets can be related with sustainability (see, for example, [12,13] for some discussion on this topic).In this study we propose an analysis of how oil price correlates with several of the Euro Stoxx industry indexes. The objective is to understand how the correlation differs among 10 different sectorial indexes: oil and gas, basic materials, industrials, consumer goods, health care, consumer services, telecommunications, utilities, financials and technology. Despite the large body of literature analyzing comovements between oil price and other assets, we found some need of work analyzing the possible dynamics of the relationship between crude oil prices and sectoral indexes in the EU. This kind of analysis could contribute to energy policies to reduce European countries' dependence on oil.Despite the existence of several approaches to the study of correlations between oil and different sectors, we propose a different approach. Basing our study on the detrended cross-correlation analysis coefficient (ρDCCA), and with data from 1992 to 2019, we analyse not only the correlation between oil and the chosen indexes during the whole sample, but we also make an analysis for each decade, i.e., the 1990s, 2000s and 2010s. With this, and based on the difference in the correlation between different periods (∆ρDCCA), it is possible to analyze the evolution of correlations over time and understand if those indexes' exposure to possible oil shocks increased or not, something of great importance for all the agents mentioned above.Our main findings point ...

Multi-scale Features of Interdependence Between Oil Prices and Stock Prices

“…These countries chosen for this paper are the oil-producing emerging economies that rely on oil exports. While many empirical papers have demonstrated that oil price variations have dramatic impacts on macroeconomic indicators (Zhao et al, 2021 ; Gupta & Modise, 2013 ; Gourène & Mendy, 2018 ; Ferreira et al, 2020 ), not many studies have been done on the interrelatedness between global oil prices and stock market development in general, in particular, in African countries (Boubaker & Raza, 2017 ; Junior & Tweneboah, 2020 ). More precisely, one of the crucial questions in the empirical literature corresponds to how African stock markets respond to crude oil price variations.…”

The Influence of the International Price of Oil on the Value of the EUR/USD Exchange Rate

“…In contrast, the price of a barrel of oil increased between 2003 and 2008 due to the rise of China and India as economic powers. However, the financial crisis of 2008 subsequently saw a steep decline in oil prices (Ferreira et al, 2020).…”

“…Analysing the interactions between the price of oil and other assets has become a major topic of interest (Ferreira et al, 2020). Within this context, exchange rates can be seen as one of the most important indicators of how international oil price fluctuations are expressed in the real economy and financial markets (Goel & Gupta, 2019).…”