Network analysis of risk transmission among energy futures: An industrial chain perspective

The fluctuation of energy prices has a great impact on the economy, making it essential to analyze the risk transmission among energy commodities. In this paper, we use the minimum spanning tree (MST) approach and connectedness method to study the risk transmission among energy futures in China. Eleven commodities, including two globally traded crude oil, are considered. Four major results are obtained. First, MST analysis provides evidence of industry clustering. Second, the risk transmission is generally from the petrochemical sector to the coal sector; while the risk transmission in each sector mainly spills from upstream to the downstream products. Third, methanol - polyethylene bridges the coal sector and petrochemical sector, through which the link between the two sectors has been strengthened since the outbreak of COVID-19. Fourth, the systemic risk of the energy market has increased, and several commodities have experienced a role reversal in the network since the pandemic began, especially in the petrochemical sector.

Automated summary

This study uses the minimum spanning tree (MST) approach and connectedness method to analyze risk transmission among energy futures in China. The findings suggest that the petrochemical sector has a significant impact on the coal sector, and risk transmission within each sector is mainly from upstream to downstream products. The connection between the coal sector and the petrochemical sector has been strengthened by methanol - polyethylene. Furthermore, the petrochemical sector has experienced role reversal in the network since the outbreak of COVID-19.