Dynamic Adjustment of Crude Oil Price Spreads

Atanu Ghoshray and Tatiana Trifonova

The Energy Journal, 2014, vol. 35, issue 1, 119-139

Abstract: This paper examines the dynamic adjustment of crude oil price differentials formed by a wide range of popularly traded crude oils which include non-benchmark crudes of different quality. Recent studies have pointed out the fact that the adjustment of oil price spreads is asymmetric in nature. This paper makes a contribution in many ways. Employing econometric procedures that are more powerful than recently applied methods, and on a much wider selection of crude oil pairs than previous studies we establish that the results obtained for price differentials between benchmark crudes are not representative of the behaviour of nonbenchmark pairs. Further, our results show that the adjustment of price differentials cannot be fully explained by the quality differentials which are commonly approximated by the difference in API gravity. Finally, we find that short run and long run dynamics do not show a pattern that could be linked to quality differentials.

Keywords: Crude Oil; Dynamic Adjustment; Momentum Threshold Autoregression (search for similar items in EconPapers)
Date: 2014
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Journal Article: Dynamic Adjustment of Crude Oil Price Spreads (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:35:y:2014:i:1:p:119-139

DOI: 10.5547/01956574.35.1.7

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