Changing Dynamics in European Natural Gas Prices: Does the Oil Price Still Hold Sway - an ARDL Approach

The European natural gas market has been and is currently still in the midst of a range of changing dynamics which not only pertain to market fundamentals on the demand and supply side but extend to the structural framework of the market. These developments pose the question to what extent gas prices continue to be linked to movements in crude oil prices. The paper at hand investigates this issue using an autoregressive distributed lag model (ARDL) to parse short and long-run effects of the oil price and market as well as macroeconomic factors. The results show that the long term equilibrium relationship with the oil price has weakened in the period from 2008-2017, while providing evidence that market fundamentals as price drivers have gained in significance.