Climate Shocks in Global Oil Markets: Time-Varying ENSO Transmission to WTI Spot and Futures Prices

This paper studies whether global climate shocks are priced in global oil markets in a stable and homogeneous way. Using monthly data for 1983:03–2024:10, we estimate the response of real WTI spot and futures prices to phase-specific El Niño–Southern Oscillation (ENSO) anomalies. A Time-Varying Parameter Local Projection (TVP-LP) framework recovers horizon-specific coefficient paths, allowing transmission of the same measured anomaly to vary across historical market environments. ENSO transmission is asymmetric, time-varying, and spatially heterogeneous. El Niño anomalies lower real oil prices at six- to twelve-month horizons, whereas La Niña anomalies raise them. For futures prices, responses scaled to the sample means of the phase-specific absolute impulse variables—0.33◦C for El Niño and 0.39◦C for La Niña—imply declines of about 4.1–6.8 percent and increases of about 8.3–11.5 percent. Recent ENSO episodes generate more pronounced responses, consistent with stronger roles for climate information, futures-market expectations, inventories, and delayed supply-demand adjustment. Central-Pacific events, especially La Niña, are more inflationary than Eastern-Pacific events, which are typically muted or deflationary. The findings imply that climate shocks are macro-financial risk factors in global oil markets, with implications for inflation, energy prices, and international risk transmission