A network analysis of the global energy market: an insight on the entanglement between crude oil and the world economy

TL;DR

This paper uses network theory to analyze the entanglement of oil with the global trade network, revealing oil's central role and its dynamic relationship with trade and prices.

Contribution

It introduces a network analysis framework to compare energy commodities' influence on international trade, highlighting oil's dominant and stable network position.

Findings

Oil is most correlated with the world trade web.

The energy network remained structurally stable over the decade.

Oil's trade reciprocity is negatively correlated with its price.

Abstract

One major hurdle in the road toward a low carbon economy is the present entanglement of developed economies with oil. This tight relationship is mirrored in the correlation between most of economic indicators with oil price. This paper addresses the role of oil compared to the other three main energy commodities -coal, gas and electricity, in shaping the international trading network (ITW or WTW, world trade web) in the light of network theory. It initially surveys briefly the literature on the correlation between oil prices with economic growth and compares the concepts of time correlation with the concept of spatial correlation brought about by network theory. It outlines the conceptual framework underpinning the network measures adopted in the analysis and results are presented. Three measures are taken into account: the ratio of mutual exchanges in the network (reciprocity); the role of distances in determining trades (spatial filling); and the spatial correlation of energy commodities with the whole trade network and with four trading categories: food, capital goods, intermediate goods and consumption goods. The analysis deliver five main results:1) the the energy commodities network was structurally stable amid dramatic growth during the decade considered; 2) that oil is the most correlated energy commodity to the world trade web; 3) that oil is the most pervasive network, though coal is the less affected by distances; 4) that oil has a remarkably high level of internal reciprocity and external overlapping 5) that the reciprocity of the trade network is negative correlated in time with the price of oil.