Energy Market Uncertainty and the Impact on the Crude Oil Prices

Bing Xu, Rong Fu, Chi Keung Marco Lau

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Our paper proposes a novel measure of global energy market uncertainty and studies its impact on oil prices. The current literature primarily relies on a single or small number of observable variables, or general macroeconomic uncertainty (JLN) and economic policy uncertainty (EPU) indices to reflect energy market uncertainty. Using a Factor Augmented Vector Autoregression model (FAVAR), we construct time-varying global energy market uncertainty in a data-rich environment. Our estimates show variations from JLN and EPU proxies. The results reveal that real oil prices respond strongly to our proposed aggregate energy market uncertainty shocks. We also find heterogeneous responses to different types and magnitudes of uncertainty shocks. The real price of oil is affected the most under unexpected strong demand for alternative energy sources scenario.
Original languageEnglish
JournalJournal of Environmental Management
Early online date6 Aug 2021
Publication statusE-pub ahead of print - 6 Aug 2021


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