Oil and Product Price Dynamics in International Petroleum Markets

40 Pages Posted: 24 Nov 2003

See all articles by Alessandro Lanza

Alessandro Lanza

Fondazione Eni Enrico Mattei (FEEM), Milan; CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici; Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy

Matteo Manera

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS); Fondazione Eni Enrico Mattei (FEEM), Milan, Italy

Massimo Giovannini

Boston College - Department of Economics

Date Written: September 2003

Abstract

In this paper we investigate crude oil and products price dynamics. We present a comparison among ten price series of crude oils and fourteen price series of petroleum products, considering four distinct market areas (Mediterranean, North Western Europe, Latin America and North America) over the period 1994-2002. We provide first a complete analysis of crude oil and product price dynamics using cointegration and error correction models. Subsequently we use the error correction specification to predict crude oil prices over the horizon January 2002-June 2002. The main findings of the paper can be summarized as follows: a) differences in quality are crucial to understand the behaviour of crudes; b) prices of crude oils whose physical characteristics are more similar to the marker show the following regularities: b1) they converge more rapidly to the long-run equilibrium; b2) there is an almost monotonic relation between Mean Absolute Percentage Error values and crude quality, measured by API gravity and sulphur concentration; c) the price of the marker is the driving variable of the crude price also in the short-run, irrespective of the specific geographical area and the quality of the crude under analysis.

Keywords: Oil prices, Product prices, Error correction models, Forecasting

JEL Classification: C22, D40, E32

Suggested Citation

Lanza, Alessandro and Manera, Matteo and Giovannini, Massimo, Oil and Product Price Dynamics in International Petroleum Markets (September 2003). FEEM Working Paper No. 81.2003. Available at SSRN: https://ssrn.com/abstract=464760 or http://dx.doi.org/10.2139/ssrn.464760

Alessandro Lanza (Contact Author)

Fondazione Eni Enrico Mattei (FEEM), Milan

Corso Magenta 63
20123 Milan
Italy

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici ( email )

via Augusto Imperatore, 16
Bologna, I-73100
Italy

Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy ( email )

viale Filippetti, 9
Milan, 20122
Italy

Matteo Manera

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS) ( email )

Via Bicocca degli Arcimboldi, 8
Milan, 20126
Italy
+39 02 6448 5819 (Phone)
+39 02 6448 5878 (Fax)

HOME PAGE: http://www.matteomanera.it

Fondazione Eni Enrico Mattei (FEEM), Milan, Italy ( email )

Corso Magenta, 63
Milan, 20123
Italy
+39 02 520 36944 (Phone)

HOME PAGE: http://www.feem.it

Massimo Giovannini

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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