The inevitable role of El Niño: a fresh insight into the oil market

Abstract

This paper explores the time-varying interaction between El Niño phenomenon and the oil market by applying the wavelet analysis. Few studies have explored the time-varying interrelationship between El Niño phenomenon and oil price (also the prices of petroleum products) by considering the time and frequency domains, and this paper will fill the above gaps. The empirical results reveal that El Niño index (NINO) which reflects the strength of El Niño phenomenon has a negative influence on oil price (OP) in the long run, but this view does not hold in the short and medium terms. These results are not consistent with the intertemporal capital asset pricing model (ICAPM), which indicates that there is a positive influence from NINO to OP. In turn, OP positively affects NINO in the medium term. Through comparing the five petroleum products, we can conclude that heating oil price (HOP) is the most relevant to NINO, while gasoline price (GOP) and diesel fuel price (DOP) have relatively weak relationships with it. Understanding the interactions between El Niño phenomenon and the oil market can provide insights for the investors, oil enterprises and related authorities.

Effect of rare disaster risks on crude oil: evidence from El Niño from over 145 years of data

“…Given these results, the null hypothesis, that SOI does not Granger cause OILR, cannot be rejected at the conventional 5% level of significance, though weak evidence of predictability is observed at the 10% level. Therefore, based on the standard linear test, we conclude that there is no evidence of statistically strong ENSO-related effects on real oil returns, in line with Qin et al, (2020), who too made similar observations using a waveletbased approach.…”

“…The ENSO cycle changes the global climate pattern (Martin et al, 2013;Staupe-Delgado et al, 2018;Rojas et al, 2019), which in turn affects the demand and supply in the oil market, resulting in price fluctuations (Changnon, 1999;Cruz and Krausmann, 2013;Cashin et al, 2017;Qin et al, 2020). The literature suggests multiple channels in which ENSO can drive return and volatility dynamics in crude oil.…”

Oil prices volatility and economic performance during COVID-19 and financial crises of 2007–2008

“…Many macroeconomic aggregates have been suggested to be unstable as a result of oil price variations in different countries. As a result of this significance, it has been stated that oil price is more unpredictable and unexpected ( Bhowmik et al, 2016 ; Qin et al, 2020 ; Umar et al, 2021c ). A surge in oil prices is attached with increased costs and prices of petroleum products, which in turn decreases productivity and, hence, ends up with low economic growth.…”

El Niño, La Niña, and the Forecastability of the Realized Variance of Heating Oil Price Movements

“…As a result, El Niño and La Niña phases are likely to cause fluctuations in the price of heating oil, given its crucial role as a source of heat in the winter months. Not surprisingly, while analyzing the role of the ENSO on the prices of oil, gasoline, heating oil, diesel fuel, jet fuel and propane, [2] detect the strongest impact for heating oil.…”