Modeling and Identifying States of Irreversibility in Energy-Related Markets

The energy market plays a vital role in the development of each country by balancing the production and consumption of energy commodities. Various factors can influence the price of oil or gas, and the disturbances of one variable can instigate short-term, medium-term, or long-term changes in another. Such interconnection between these commodities forms a very complex multiparametric system with trends opposite to the previous dynamics and more predictable periods. Periods of unpredictability characterize the irreversibility of the studied systems, and its loss may be the indicator of destructive processes. Therefore, this article presents indicators-precursors of crisis events which are characterized by the decrease of irreversibility as they occur. The study examines the daily prices of West Texas Intermediate crude oil and Henry Hub natural gas spot prices. The objective is to identify indicators that serve as signs of the upcoming crises in these markets. The estimation of such indicators is based on the algorithms of the natural visibility graph and permutation patterns. In addition, the objective is the construction of a toolbox based on the Python programming language, designed to facilitate the development of indicators of irreversibility using the sliding window procedure. This study proves that the irreversibility of the system can serve as a precursor of financial collapses.