Evolution of the oil and gas price-linkage with multiple uncertainties

This study examines the evolution of oil-gas return spillovers over a sample period characterized by multiple sources of market uncertainties, with a dynamic frequency-domain spillover network model. These uncertainties or risks originate from destruction of energy infrastructure, pandemics, and geopolitical conflicts. In the long-term frequency domain, crude oil benchmarks are shown to be recipients of risk spillovers from highly market-driven natural gas markets. Among these benchmarks, the emerging crude oil futures benchmark (INE) exhibits greater sensitivity to risk spillovers compared with traditional ones like WTI and Brent. Regional geopolitical tensions, such as the Russia-Ukraine conflict, substantially amplify risk spillovers from regional natural gas markets to crude oil markets across all frequency domains. The leading role of natural gas markets is expected to rise during the ongoing energy transition. When comparing the Asian natural gas markets with those in North America and Europe, it is evident that higher levels of marketization contribute to both quicker responsiveness to risk spillovers caused by systemic events and an enhanced capacity to transmit risks within the oil-gas system.