How responsive are retail electricity prices to crude oil fluctuations in the US? Time-varying and asymmetric perspectives

Electricity and oil are both scarce energy resources. A review of the previous literature shows tests of the impact of crude oil prices on electricity prices, given that crude oil is one of the primary raw materials in electricity generation. Nevertheless, none of these tests can clearly demonstrate the dynamic asymmetric interaction in their relations. Heading in this direction, we apply the asymmetric Granger causality test to capture the time-varying features and structural breakpoints of the causality from crude oil shocks to retail electricity shocks. Our analysis answers the question of whether, how, and why crude oil price fluctuations can be a significant factor in electricity price fluctuations of all users (residential, commercial and industrial) in the United States. The results suggest that some structural breakpoints of their relations may be triggered by extreme events. In particular, the impact of crude oil price shocks on commercial and industrial electricity prices seems more pronounced. This study provides a special perspective on the effects of oil price volatility on retail electricity prices, which is a crucial guide to addressing climate risk and limited fossil fuel stocks.