The connectedness in the world petroleum futures markets using a Quantile VAR approach

• Published in: Journal of commodity markets 2022-09, Vol.27, p.100222, Article 100222
• Main Authors: Jena, Sangram Keshari, Tiwari, Aviral Kumar, Aikins Abakah, Emmanuel Joel, Hammoudeh, Shawkat
• Format: Article
• Language: English
• Subjects: LASSO-VAR model; Petroleum futures prices; Time-varying; TVP-VAR-Quantile risk spillover model; Volatility spillovers
• ISSN: 2405-8513; 2405-8505
• DOI: 10.1016/j.jcomm.2021.100222

This paper investigates how the six major petroleum futures Oman crude, NYMEX RBOB gasoline, ICE low sulphur gasoil, ICE Brent crude, NYMEX light sweet crude and NYMEX NY Harbor ULSD (the new standard for highway diesel)) traded at three global key commodity exchanges are connected, using the novel Quantile VAR spillover approach. The study finds high degree of return connectedness between these markets, which increases as the size of the return shock increases at the 5th and 95th quantiles relative to the median 50th quantile. The global benchmark Brent crude futures traded at the Intercontinental Exchange (ICE) emerges as the lead petroleum futures irrespective of market conditions. NYMEX_RBOB_gasoline_futures emerges as a major receiver of return shocks from other oil futures market. The findings are validated in a time-varying framework, and robustness is also cross validated using the LASSO VAR spillover analysis. Policy implications of the findings are also discussed. •How six major petroleum futures traded on three different exchanges are connected?•Level of connectedness increases in both the bullish and bearish markets.•Brent crude futures emerges as the lead petroleum futures in all market conditions.•Oil price behavior is symmetrical for both the positive and negative return shocks.