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http://dx.doi.org/10.15266/KEREA.2019.28.1.121

An Analysis on Inter-Regional Price Linkage of Petroleum Products  

Song, Hyojun (SK Research Institute)
Lee, Hahn Shik (School of Economics, Sogang University)
Publication Information
Environmental and Resource Economics Review / v.28, no.1, 2019 , pp. 121-145 More about this Journal
Abstract
This paper investigates the relationship between the oil price and the major petroleum products prices at the trading hubs such as Singapore, North West Europe and the US New York Harbor. We focus on the lead-lag relationship between the weekly petroleum prices from 2009 to 2016 based on the vector error correction model. We find that the oil price leads the prices of petroleum products in the long term, while there is bidirectional causality in the short term. On the other hand, prices of petroleum products in regions with high import dependency, such as Europe gas oil and jet fuel price, are exogenous in the long term. We also present evidence that prices of petroleum products in region with a large global-market share lead prices in other regions. However, if the region is in an over-production situation and low industry concentration, it may lose its price leadership due to intense competition. The result in this study can provide a useful information to petroleum refining companies in forecasting fluctuations of product price, and hence in planning their regional arbitrage trading activities.
Keywords
Oil price; Petroleum product price; Granger causality; Vector error correction model;
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