Investigating the Price Behavior of Oil Products in Response to Changing the Price of Crude Oil in the Framework of Iranian Policy in the Oil Sector

Shahrzad Mohammad Khanli (), Teymour Mohammadi (), Ali Faridzad () and Abdolrasoul Ghasemi ()
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Shahrzad Mohammad Khanli: Ph.D. Candidate in Oil & Gas Economics, Allameh Tabatabai University
Teymour Mohammadi: Associate Professor of Economics, Allameh Tabatabai University
Ali Faridzad: Assistant Professor of Economics, Allameh Tabatabai University
Abdolrasoul Ghasemi: Associate Professor of Economics, Allameh Tabatabai University

Quarterly Journal of Applied Theories of Economics, 2018, vol. 5, issue 1, 1-24

Abstract: In recent years, the reform of oil product prices has been on the agenda for enforcing subsidies targeting and moving towards real prices. Understanding the pricing behavior of these products prior to making any decision is very important, which can be considered as a prerequisite for many energy-related decisions. The present paper seeks to investigate the existence of a rocket-feather effect in oil product prices- high-speed and fast-moving like a rocket, in response to rising crude oil prices and slow down prices, like a feather, in response to decrease crude oil prices. In this paper, which uses a nonlinear autoregressive distributed lags (NARDL) model and monthly data for the period 2005 to 2016, the results indicate a long-term and short-run asymmetric as well as rocket-feather effect for each of the five products. Therefore, in view of the above, it seems that the choice of Persian Gulf fob prices is not a suitable criterion, and the government should proceed with a favorable review in the targeted subsidy law and other related upstream legislation.

Keywords: Price of crude oil; Oil products; Subsidy; Asymmetry; NARDL. (search for similar items in EconPapers)
JEL-codes: C40 E60 H20 Q43 (search for similar items in EconPapers)
Date: 2018
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