Crude oil prices in times of crisis: The role of Covid-19 and historical events

Oil markets have faced several crises since 1986, with the most recent global economic downturn linked to the Covid-19 pandemic leading to significant demand and supply shocks in the critical oil market. Given that the impact of crises on oil prices has not been uniform we aim to accurately assess oil price volatility during crises by implementing an ARMA(r,s)-Spline-GJR(p,q) model that accounts for volatility persistence. Principal components analysis (PCA) is employed to study the correlation between various crises and their impact on oil prices, while because of the limited number of observations available, PLS regressions are used to study the Covid-19 Crisis. The findings reveal higher levels of spline conditional volatility during the Covid-19 Crisis, providing novel evidence of the correlation between this pandemic and other major crises.