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Oil Costs and Prices: An Empirical Causality Analysis

Author

Listed:
  • Pedro Moreno Alonso

    (Comillas Pontifical University, Spain)

  • Antonio Mu oz San Roque

    (Comillas Pontifical University, Spain)

Abstract

This study analyzes the causal relationship between oil prices and production costs and their implication over hedging in production companies. Two different data sets have been used as a proxy for production costs: i) monthly product price index related to oil activities from the Bureau of Labour of Statistics; ii) yearly data obtained from reports of publicly traded oil companies. For the oil price, different future contracts of Brent (1M, 12M, 24M, 60M) have been explored. Based on Granger's definition of causality, and using the Toda-Yamamoto (1995) methodology, both causal directions have been tested. The results obtained indicate that oil prices (any term of the curve) Granger-cause production costs, and not the other way around (as it has been considered for many specialists) in any term of the curve.

Suggested Citation

  • Pedro Moreno Alonso & Antonio Mu oz San Roque, 2021. "Oil Costs and Prices: An Empirical Causality Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 546-554.
    • Handle: RePEc:eco:journ2:2021-03-66
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Oil Price; Production Costs; Hedging; Granger Causality; Toda-Yamamoto;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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