Energy Contagion in the COVID-19 Crisis

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By Reinhold Heinlein

At the time of the COVID-19 crisis, the oil market has suffered an unprecedented crisis, with the WTI crude oil price dropping into negative territory (-$37.63 per barrel) in April 2020. At the same time, the oil/stock market nexus is not clear cut and limited studies have considered the impact of crises in the oil market. A new working paper by researchers at UWE, Keele and Portsmouth investigates this unique situation.

Using a high frequency dataset (collected at intervals of 5 minutes), for a selected sample of oil importing and exporting countries across G7, BRICS and Scandinavian economies, we demonstrate the existence of an energy contagion, in terms of a consistently higher interdependence between stock markets and the crude-oil market during the COVID-19 driven oil crisis. Such results applies to all countries in our sample, although oil exporters are shown to have been hit more heavily, with Russia exhibiting the highest contagion.

Overall, our results confirm the importance of crude oil on stock markets, which have been shown to behave as a market of one during the recent crisis.

Reference and link: Reinhold Heinlein (Bristol Business School) is currently researching on the link between crude oil prices and stock markets during the COVID-19 pandemic, in a new paper, “Energy Contagion in the COVID-19 Crisis” written with Gabriella Legrenzi (Keele University) and Scott Mahadeo (Portsmouth University) and published in the CESifo Working Paper series No. 8345.

View the full working paper here.

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