Examining crude oil price outlook amidst substitute prices and household energy expenditures in the USA: A novel nonparametric multivariate QQR approach

Abstract

The outlook of crude oil prices has sparsely been empirically examined especially from the critical perspectives of energy expenditure per household, retail electricity prices, and environmental indicators. Given the enormous macroeconomic and socioeconomic effects of crude oil price amidst the fundamentals, this study examines the dynamics of the oil price outlook amidst energy demand (measured by energy expenditure per household), retail electricity price i.e., substitute price, and carbon dioxide (CO2) emissions in the United States of America (USA) over the period 1970 to 2040. This study offers two main innovations: first, it extends the bivariate nonparametric Quantile-on-Quantile Regression (QQR) to the multivariate case. Second, the analysis incorporates projected data series, which provides useful policy insights. The empirical results show evidence of time-varying effects of energy expenditure per household, retail electricity price, and CO2 emissions across the quantiles of crude energy prices. The results further show that the effect of energy demand through household energy expenditures is positive and stronger at the lower quantiles of crude oil price, which corresponds to periods of low crude oil prices. Furthermore, the effects of retail electricity price and CO2 emissions are negative and stronger in the mid-quantiles of crude oil price. This suggests that retail electricity prices and environmental indicator dampen crude oil prices during periods of low crude oil prices. These findings are robust to multivariate Quantile regression and Kernel-based Regularized Least Squares (KRLS) estimates. Therefore, our study suggests timevarying policies to dampen the effects of energy demand, retail electricity price, and environmental indicator on crude oil prices in the USA.