Do tense geopolitical factors drive crude oil prices?

Fen Li, Zhehao Huang , Junhao Zhong*, Khaldoon Albitar

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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Abstract

Geopolitical factors are considered a crucial factor that makes a difference in crude oil prices. Over the last three decades, many political events occurred frequently, causing short-term fluctuations in crude oil prices. This paper aims to examine the dynamic correlation and causal link between geopolitical factors and crude oil prices based on data from June 1987 to February 2020. By using a time-varying copula approach, it is shown that the correlation between geopolitical factors and crude oil prices is strong during periods of political tensions. The GPA (geopolitical acts) index, as the real factor, drives the rise in prices of crude oil. Moreover, the dynamic correlation between geopolitical factors and crude oil prices shows strong volatility over time during periods of political tensions. We also found unidirectional causality running from geopolitical factors to crude oil prices by using the Granger causality test.
Original languageEnglish
Article number4277
Pages (from-to)1-19
Number of pages19
JournalEnergies
Volume13
Issue number16
DOIs
Publication statusPublished - 18 Aug 2020

Keywords

  • GPR index
  • time-varying copula
  • Granger causality test
  • extreme political acts
  • dynamic correlation

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