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Crude oil futures and the short-term price predictability of petroleum products

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Listed:
  • Wen, Danyan
  • Wang, Huihui
  • Wang, Yudong
  • Xiao, Jihong

Abstract

This study investigates the lead-lag effect between crude oil futures and petroleum products from the view of price predictability. The findings of the Granger causality test provide evidence for the leading role of crude oil futures. Further empirical results show that crude oil futures demonstrate strong predictive power for petroleum products both in- and out-of-sample, and this predictability is a short-term phenomenon. During economic recessions, petroleum product prices exhibit stronger predictability, with out-of-sample R2 reaching a maximum of 39.161 %. Additionally, the outstanding forecasting performance remains robust across a range of settings. Finally, two potential economic sources underlying the lead-lag relationship between crude oil and petroleum product markets are provided: the differential response speed to common energy market information and the perspective of raw material supply.

Suggested Citation

  • Wen, Danyan & Wang, Huihui & Wang, Yudong & Xiao, Jihong, 2024. "Crude oil futures and the short-term price predictability of petroleum products," Energy, Elsevier, vol. 307(C).
    • Handle: RePEc:eee:energy:v:307:y:2024:i:c:s0360544224025246
    DOI: 10.1016/j.energy.2024.132750
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    More about this item

    Keywords

    Crude oil market; Petroleum products; Price predictability; Lead-lag effects;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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