Price comovement in energy and commodity markets

This master thesis examines geographical market integration in energy markets, price comovement between oil, natural gas and coal, as well as price comovement between energy and non-energy commodities (agricultural products, industrial metals and precious metals). A relatively comprehensive review of the literature is made, and a cointegration analysis between crude oil and various non-energy commodities is also carried out. The findings indicate that oil is quite strongly integrated into one global market, although recent developments imply that this may change. Coal markets are not as strongly integrated as oil, but the presence of a single global coal market is still likely. Natural gas markets are probably divided in two, perhaps three, global markets. Some relatively strong regional integration between energy carriers exists, but there is no integrated common market. Several long-term price relationships between energy and non-energy commodities also seem to be present, but it is very difficult to determine which causal factors are responsible