Petroleum products prices behavior and demand trends: an econometric analysis

This study examines the relationship between crude oil and petroleum products prices in the European, Asian and North American markets. We develop an econometric model, based on the long term equilibrium between the prices, which takes into account the changes in the oil product demand trends. We explain price behaviors by the impact of the demand trends. Because the re ning industry which transforms crude into petroleum products is a joint product industry, petroleum product pricing is a ected by demand trends both in terms of quality and quantity. Consequently, the long term equilibrium between prices, estimated through a cointegration approach, are a ected by several structural breaks. We also develop a panel econometric model which simultaneously takes into account the relative prices of all world products towards one crude. Finally, the di erent results are compared to the marginal costs derived from an oil re ning optimization model. This econometric modeling approach enables a better understanding of the long term equilibrium between prices of petroleum products and crude. Keywords: Re nery industry, Petroleum product prices, Panel data, Cointegratio