Does U.S. debt ceiling uncertainty drive crude oil markets? Evidence from heterogeneous impacts and influence channels

Purpose This study aims to explore the impacts of U.S. debt ceiling uncertainty on crude oil markets and further reveal the specific influence mechanisms. Design/methodology/approach This paper introduces a debt ceiling uncertainty index based on news reports and selects six representative crude oil futures and spot markets to investigate the heterogeneous impacts of U.S. debt ceiling uncertainty on crude oil markets. More specifically, on the one hand, the nonparametric causality-in-quantiles test method is used to discuss the asymmetric impacts of debt ceiling uncertainty on the different conditional distributions of crude oil series. On the other hand, the dynamic effects of debt ceiling uncertainty on crude oil markets are analyzed, combining with the time-varying parameter vector autoregressive model. Findings The conclusions of this paper are as follows: First, the U.S. debt ceiling uncertainty has obvious nonlinear impacts on each crude oil market, and the effects are greater under the normal condition of crude oil markets rather than under their extreme conditions. Second, the shocks from debt ceiling uncertainty to crude oil markets are mainly illustrated as negative and can be significantly enhanced by important debt-related events. Over time, the reactions of crude oil markets turn to weak positive and gradually dissipate after 6 months. Finally, enterprise production, investor sentiment and government shutdown play important roles as transmission intermediaries for the influence of debt ceiling uncertainty on the crude oil market. Originality/value The findings are beneficial for investors to accurately judge oil price trends and prevent investment losses caused by debt risks and also help producers prevent the impacts of crude oil price changes on production and operation activities. Moreover, it is conducive to the management department to maintain the stability of the crude oil market, thus enabling the crude oil financial market to better serve the real economy.

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Publication Details

Journal
China Finance Review International
Published
2025-11-21
DOI
https://doi.org/10.1108/cfri-04-2025-0219
Primary Topic
Market Dynamics and Volatility
Type
article
Field-Weighted Citation Impact
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article

Does U.S. debt ceiling uncertainty drive crude oil markets? Evidence from heterogeneous impacts and influence channels

Yu Wei, Kun Yang, Wenhua Yu, Xiaoyan Yang
China Finance Review International
Market Dynamics and Volatility
article

Does U.S. debt ceiling uncertainty drive crude oil markets? Evidence from heterogeneous impacts and influence channels

Yu Wei, Kun Yang, Wenhua Yu, Xiaoyan Yang
article en

Abstract

Purpose This study aims to explore the impacts of U.S. debt ceiling uncertainty on crude oil markets and further reveal the specific influence mechanisms. Design/methodology/approach This paper introduces a debt ceiling uncertainty index based on news reports and selects six representative crude oil futures and spot markets to investigate the heterogeneous impacts of U.S. debt ceiling uncertainty on crude oil markets. More specifically, on the one hand, the nonparametric causality-in-quantiles test method is used to discuss the asymmetric impacts of debt ceiling uncertainty on the different conditional distributions of crude oil series. On the other hand, the dynamic effects of debt ceiling uncertainty on crude oil markets are analyzed, combining with the time-varying parameter vector autoregressive model. Findings The conclusions of this paper are as follows: First, the U.S. debt ceiling uncertainty has obvious nonlinear impacts on each crude oil market, and the effects are greater under the normal condition of crude oil markets rather than under their extreme conditions. Second, the shocks from debt ceiling uncertainty to crude oil markets are mainly illustrated as negative and can be significantly enhanced by important debt-related events. Over time, the reactions of crude oil markets turn to weak positive and gradually dissipate after 6 months. Finally, enterprise production, investor sentiment and government shutdown play important roles as transmission intermediaries for the influence of debt ceiling uncertainty on the crude oil market. Originality/value The findings are beneficial for investors to accurately judge oil price trends and prevent investment losses caused by debt risks and also help producers prevent the impacts of crude oil price changes on production and operation activities. Moreover, it is conducive to the management department to maintain the stability of the crude oil market, thus enabling the crude oil financial market to better serve the real economy.

China Finance Review International
Chengdu University of Information Technology (CN), Chengdu University of Technology (CN), Yunnan University of Finance And Economics (CN)
Openalex Percentile: Top 57%
Market Dynamics and Volatility
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