New evidence for super cycles in oil and coal

Abdel M. Zellou presented his preliminary research findings on “Super Cycles in Energy Commodities: Applications to Coal and Crude Oil.” Zellou began by explaining the background and goals of his research. “What pushed me… in looking into super cycles in energy commodities is skepticism about super cycles in the first place and skepticism in finding super cycles in oil prices due to the structure of the oil market.” He chose to take a closer look at both the oil and coal markets because oil has no competitive market and coal has always had a competitive market. Zelou explained, “This lack of a competitive [oil] market made us skeptical about finding supercycles in the oil market.”

Zellou intended to make four main contributions with his research. He first sought to determine whether there are super cycles in oil and coal. Secondly, he sought to make an “incremental contribution” to the existing Dvir-Rogoff model for super cycles. Third, he sought to complete the GARCH modeling of variance with super cycles and finally, to use GARCH modeling to examine the effects of potential super cycles on metal prices.

“I’ll be using… the asymmetric Christiano-Fitzgerald Bandpass filter and I’m looking at analyzing and comparing the super cycles in oil and metals and looking at the GARCH modeling,” said Zellou of his model. He analyzed the nominal and real oil prices since 1861 and the coal prices since 1800 in his search for these super cycles.

Zellou argues that his results show that super cycles do appear to exist in the both the oil and coal industries. He found that there was an extremely high correlation between nominal and real prices as well as twenty-year and thirty-year moving averages, suggesting that these cycles are not artifacts of price deflators. Coal has shown a steady price trend since the 1970’s, but oil has been following an upward real price trend since World War II. Additionally, Zellou noted that high volatility in the oil market is usually followed by low volatility, with a cycle time of about 28 years. Generally, the super cycles of oil were more pronounced than those of coal, but both were consistent with the epochs laid out by the Dvir-Rogoff model.

GARCH modeling tentatively supports Zellou’s conclusions as well. “We applied the GARCH modeling on oil and coal and we did find a contribution coming from the super cycle component.” However, the models did not support the initial idea that metal prices would be affected by the oil and coal super cycles.

Though his research is not yet finalized, Zellou shared his preliminary conclusions. He has found that super cycles in oil and coal do exist. His research was consistent with the price volatility model proposed by Dvir and Rogoff. This research also aligns with the agriculture, industry, and service progressions. Zellou hopes to continue his work and expand the GARCH modeling aspects.
Picture Caption: Abdel Zellou presents on super-cycles in coal and oil prices.