Study: Pandemic affected major producers, war in Ukraine benefited Norway and France

The COVID-19 pandemic and the Russia-Ukraine war brought dramatic changes to global markets, and the energy sector was no exception. A new study reveals the impact the two crises had on energy companies’ returns in the first few days after the events were announced. Unsurprisingly, the results show that the pandemic had a greater impact on US markets, while the war primarily affected Europe. But they also offer an interesting insight into which countries investors viewed positively. 

During the COVID-19 pandemic and the Russia-Ukraine war, global markets—and the energy sector along with them—experienced a major shock. For example, oil prices fell to historic lows amid oversupply and reduced consumer demand, with the price of the US WTI benchmark dropping to minus USD 37.63 per barrel on 20 April. Russia’s invasion of Ukraine had the opposite effect, sending gas and electricity prices in European markets to extreme levels; for several months after the war began, prices were in the hundreds or even thousands of euros per megawatt-hour.

As a result, many academic, government and international institutions began examining the impact of both events on the energy sector, which in recent years has faced significant challenges including decarbonisation, decentralisation and digitalisation. A study published by researchers from India and Australia has added new findings to the debate. It set out to examine the effects of the Russia-Ukraine war and the COVID-19 pandemic on the energy sector in developed and emerging markets. The researchers used data from the Refinitiv database covering 387 companies in 44 countries.

In addition to confirming the obvious—that the outbreak of the COVID-19 pandemic led to negative returns, while the war generated positive returns—the study also found very high volatility in stock returns. The findings also suggest that markets in emerging economies such as India and China began reacting to the COVID-19 pandemic much earlier. This is consistent with the development of policies and the imposition of restrictions, which began to be introduced across Asia much earlier, before the epidemic grew into a global pandemic.

By contrast, the war in Ukraine had a much greater impact on markets in developed regions such as Europe and the United States. The authors attribute this to their economic structures and mutual dependencies in international trade: Russia was Europe’s main and by far largest gas supplier.

COVID-19 affected the US more than Europe

The analysis also showed that the COVID-19 event affected US markets more than Europe. In this case, the study offers no specific explanation, so it is only possible to speculate whether this was due to differences in economic structure, consumer behaviour or policies for dealing with the pandemic. One possible explanation may also be differences in transport preferences between the two regions (private/public).

According to the data analysed, the first few days after the pandemic was officially announced also had a significant impact on countries such as Australia, Chile, Norway, Singapore, the United Arab Emirates and the United Kingdom. In Australia, for example, the cumulative abnormal returns of the companies analysed—that is, the sum of the differences between a stock’s expected and actual returns—fell by tens of points, rather than the single-digit amount initially recorded.

It is also no surprise that most of the countries on the list are producers of commodities and metals, or key transit countries. The United Arab Emirates is among the world’s ten largest oil producers, Chile is the world’s largest copper producer, and Singapore is an absolutely key hub for maritime transport in Asia.

The war benefited Norway and France

The study also assesses the impact of the Russia-Ukraine war on individual countries using the data analysed. Unlike on the day the COVID-19 pandemic was announced, companies in countries that produce commodities and metals generally saw their cumulative abnormal returns rise. In the following days, however, they fell dramatically, as the study illustrates with the cases of the US and Canada.

It is probably no surprise that, according to the results, Norwegian companies saw significant gains in the days after the war began. Before the conflict, Norway was Europe’s second-largest gas supplier, accounting for almost 20% of imports, and now its share is around 30%. A week after the event was announced, cumulative abnormal returns had risen by almost 15 points.

The indicator was also positive for French companies. This could mean one of two things: investors either concluded that the crisis would not negatively affect French companies, or decided that France could benefit from the crisis. The study’s authors do not offer an explanation, but given the country’s energy mix, based primarily on nuclear power, both arguments are relevant.