Do booms and busts identify bubbles in energy prices?

The rapid growth of the energy industry and its impact on the global economy have attracted special attention. This study examines the explosiveness of different energy prices from 2000:01 to 2021:09 through Supremum Augmented Dickey-Fuller (SADF) and Generalized Supremum Augmented Dickey-Fuller (GSADF) and finds multiple bubbles. It explores that liquefied natural gas is the most explosive, followed by crude oil prices and coal prices, which are induced by speculation, economic and political events. Natural gas and heating oil prices are less volatile, indicating a single bubble. The most important period that coincides with the energy price bubble is 2007-2008, driven by strong economic growth and the global financial crisis. Similarly, there is a bubble around 2014-2015, which is caused by slow economic growth and an oversupply of oil. The result is consistent with the present value model, establishing that the energy market prices deviate from its fundamentals, and bubbles appear. The results provide early warning information for governments, investors, regulators and economists. Early warning enables stakeholders to mitigate the impact of potential bubbles. Therefore, setting energy prices at the right time provides regulators and policymakers with a preemptive opportunity.

Automated summary

The rapid growth of the energy industry and its impact on the global economy have received special attention. This study uses statistical methods to identify multiple bubbles in energy prices, with liquefied natural gas exhibiting the highest level of explosiveness. The important periods coinciding with energy price bubbles are 2007-2008, driven by strong economic growth and the global financial crisis, and 2014-2015, caused by slow economic growth and oil oversupply. The results indicate that energy market prices deviate from their fundamentals, suggesting the presence of bubbles, and provide early warning information for governments, investors, regulators, and economists.