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On the relationship between forward prices of crude oil and domestic fuel: A panel data cointegration approach

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  • Marc Joëts

Abstract

The aim of this paper is to investigate the existence of a long-term relationship between the forward prices of crude oil and domestic fuel (FOD) on the period from August 2003 to April 2010. To this end, we rely on a panel data setting by considering a sample of 36 maturities for the forward prices. Using panel cointegration tests, our results show that oil and fuel prices are characterized by a strong homogeneous long-term equilibrium relationship for several maturities. Estimating a panel error correction model, we find that FOD prices are influenced by oil prices variations on both the short and the long run. The existence of a unique equilibrium model for all maturities may have important implications for financial arbitrage strategies based on energy prices relationships, industrial product plan and calculating consumer prices.

Suggested Citation

  • Marc Joëts, 2011. "On the relationship between forward prices of crude oil and domestic fuel: A panel data cointegration approach," International Economics, CEPII research center, issue 126-127, pages 39-49.
    • Handle: RePEc:cii:cepiie:2011-q2-3-126-127-3
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    Cited by:

    1. Moutinho, Victor & Bento, João Paulo Cerdeira & Hajko, Vladimír, 2017. "Price relationships between crude oil and transport fuels in the European Union before and after the 2008 financial crisis," Utilities Policy, Elsevier, vol. 45(C), pages 76-83.

    More about this item

    Keywords

    ENERGY; Forward Energy Prices; Oil; Domestic Fuel; Panel Cointegration;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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