Some further empirical evidence on the impact of oil price changes on petrol prices

This paper analyses the asymmetries in the response of petrol prices to oil price shocks. We show that previous work, based on the determination of asymmetric responses, can be improved upon by allowing for asymmetries in short term dynamics. The paper shows that a significant determinant of the response of petrol prices to oil price changes, is the extent to which petrol price can be seen to have departed from its long run equilibrium level.

Causality in crude oil prices

Economic media inform on prices of three well established crude oil benchmarks: Brent, WTI and Dubai Fateh. The relevance of these is however declining with their low output - motivating investigation of the pricing dynamics. We apply Granger causality tests to study the price dependencies of 32 crude oils. The aim is to establish what crudes are setting the prices and what crudes are just following the general market trends. The investigation is performed globally as well as for different quality, geographical and organisational segments. The results indicate that crude oil price analysts should follow at least four different crudes that are good price indicators. WTI and Brent still lead the market, but they are not the only crude prices worth paying attention to. In particular, Russian Urals drives global prices in a significant way, and Iran Seri Kerir is a significant price setter within OPEC. Dubai Fateh does not display any significant influence as a price setter, which confirms the lack of dominant benchmark within the segment of medium quality crudes.

Density forecasts of crude-oil prices using option-implied and ARCH-type models

The predictive accuracy of competing crude-oil price forecast densities is investigated for the 1994–2006 period. Moving beyond standard ARCH type models that rely exclusively on past returns, we examine the benefits of utilizing the forward-looking information that is embedded in the prices of derivative contracts. Risk-neutral densities, obtained from panels of crude-oil option prices, are adjusted to reflect real-world risks using either a parametric or a non-parametric calibration approach. The relative performance of the models is evaluated for the entire support of the density, as well as for regions and intervals that are of special interest for the economic agent. We find that non-parametric adjustments of risk-neutral density forecasts perform significantly better than their parametric counterparts. Goodness-of-fit tests and out-of-sample likelihood comparisons favor forecast densities obtained by option prices and non-parametric calibration methods over those constructed using historical returns and simulated ARCH processes. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:727–754, 2011

Asymmetric price transmission in EU petroleum markets

This research investigates the determinants of asymmetric price transmission (APT) in European petroleum markets. APT is the faster response of retail prices to cost increases than to cost decreases; resulting in a welfare transfer from consumers to fuel retailers. I investigate APT at 3 different levels: the EU, the UK and at the Birmingham level. First, I examine the incidence of asymmetries in the retail markets of six major EU countries; significant asymmetries are found in all countries except from the UK. The market share data suggest that asymmetries are more important in more concentrated markets; this finding supports the collusion theory. I extend the investigation to 12 EU countries and note that APT is greater in diesel markets. The cross-country analysis suggests that vertical and horizontal concentration at least partly explains the degree of asymmetry. I provide evidence justifying scrutiny over retail markets’ pricing and structure. Second daily data unveil the presence of APT in the UK fuel markets. I use break tests to identify segments with different pricing regimes. Two main types of periods are identified: periods of rising oil price exhibit significant asymmetries whilst periods of recession do not. Our results suggest that oligopolistic coordination between retailers generate excess rents during periods of rising oil price whilst the coordination fails due to price wars when oil prices are going downwards. Finally I investigate the pricing behaviour of petroleum retailers in the Birmingham (UK) area for 2008. Whilst the market structure data reveals that the horizontal concentration is higher than the national UK average, I find no evidence of APT. In contrast, I find that retail prices are sticky upwards and downwards and that firms with market power (majors and supermarkets) adjust their prices slower than other firms.

Low severity Fischer-Tropsch synthesis for the production of synthetic hydrocarbon fuels

Currently, the main source for the production of liquid transportation fuels is petroleum, the continued use of which faces many challenges including depleting oil reserves, significant oil price rises, and environmental concerns over global warming which is widely believed to be due to fossil fuel derived CO2 emissions and other greenhouse gases. In this respect, lignocellulosic or plant biomass is a particularly interesting resource as it is the only renewable source of organic carbon that can be converted into liquid transportation fuels. The gasification of biomass produces syngas which can then be converted into synthetic liquid hydrocarbon fuels by means of the Fischer-Tropsch (FT) synthesis. This process has been widely considered as an attractive option for producing clean liquid hydrocarbon fuels from biomass that have been identified as promising alternatives to conventional fossil fuels like diesel and kerosene. The resulting product composition in FT synthesis is influenced by the type of catalyst and the reaction conditions that are used in the process. One of the issues facing this conversion process is the development of a technology that can be scaled down to match the scattered nature of biomass resources, including lower operating pressures, without compromising liquid composition. The primary aims of this work were to experimentally explore FT synthesis at low pressures for the purpose of process down-scaling and cost reduction, and to investigate the potential for obtaining an intermediate FT synthetic crude liquid product that can be integrated into existing refineries under the range of process conditions employed. Two different fixed-bed micro-reactors were used for FT synthesis; a 2cm3 reactor at the University of Rio de Janeiro (UFRJ) and a 20cm3 reactor at Aston University. The experimental work firstly involved the selection of a suitable catalyst from three that were available. Secondly, a parameter study was carried out on the 20cm3 reactor using the selected catalyst to investigate the influence of reactor temperature, reactor pressure, space velocity, the H2/CO molar ratio in the feed syngas and catalyst loading on the reaction performance measured as CO conversion, catalyst stability, product distribution, product yields and liquid hydrocarbon product composition. From this parameter study a set of preferred operating conditions was identified for low pressure FT synthesis. The three catalysts were characterized using BET, XRD, TPR and SEM. The catalyst selected was an unpromoted Co/Al2O3 catalyst. FT synthesis runs on the 20cm3 reactor at Aston were conducted for 48 hours. Permanent gases and light hydrocarbons (C1-C5) were analysed in an online GC-TCD/FID at hourly intervals. The liquid hydrocarbons collected were analyzed offline using GC-MS for determination of fuel composition. The parameter study showed that CO conversion and liquid hydrocarbon yields increase with increasing reactor pressure up to around 8 bar, above which the effect of pressure is small. The parameters that had the most significant influence on CO conversion, product selectivity and liquid hydrocarbon yields were reactor temperature and catalyst loading. The preferred reaction conditions identified for this research were: T = 230ºC, P = 10 bar, H2/CO = 2.0, WHSV = 2.2 h-1, and catalyst loading = 2.0g. Operation in the low range of pressures studied resulted in low CO conversions and liquid hydrocarbon yields, indicating that low pressure BTL-FT operation may not be industrially viable as the trade off in lower CO conversions and once-through liquid hydrocarbon product yields has to be carefully weighed against the potential cost savings resulting from process operation at lower pressures.

Price transmission in the EU wholesale petroleum markets

This article employs nonlinear smooth transition models to analyze the relationship between upstream and midstream prices of petroleum products. We test for the presence of nonlinearities in price linkages using both weekly series constructed using official EU procedures and also daily industry series applied for the first time. Our results show that the estimated shape of the transition function and equilibrium reversion path depend on the frequency of the price dataset. Our analysis of the crude oil to wholesale price transmission provides evidence of nonlinearities when prices are observed with daily frequency. The nature of the nonlinearities provides evidence in support of the existence of menu costs or, more generally, frictions in the markets rather than supply adjustment costs. This result differs from that found for the U.S. petroleum markets. © 2012 American Statistical Association.

Causality in crude oil prices

Crude oil markets witness growing disparity between the quality of crudes supplied and demanded in the market. The market share of low-quality crudes is increasing due to the depletion of old fields and increasing demand. This is unnerving the practitioners and affecting the relevance of the traditional benchmark crudes due to the lack of lower quality benchmarks (Montepeque, 2005). In this article, we apply Granger causality tests to study the price dependence of 32 crudes in order to establish which crudes drive other prices and which ones simply follow general market trends. Our results indicate that some of the old benchmarks are still relevant while others can be disregarded. Our results also interestingly show that the low-quality Mediterranean Russian Urals crude, introduced in the late 1990s, has emerged recently as a significant driver of global prices. © 2011 Taylor & Francis.