Spillover Effects in Oil Markets

Recognizing crude oil’s pivotal economic role, this study investigates the complex interdependencies between the crude oil market and the markets for its refined products: gasoline, kerosene-type jet fuel, and heating oil, addressing a gap in existing literature that largely focuses on price dynamics without considering broader market interactions. Utilizing an advanced Global Vector Autoregressive (GVAR) model, a known model from international economics, and analyzing monthly data from 2005 to 2019, our research examines production, stocks, consumption, and pricing linkages across these sectors. Findings highlight the significant impact of crude oil price fluctuations on refined product markets and identify a notable interrelation between kerosene and heating oil markets. Conversely, the influence of refined products on crude oil is limited, highlighting the dominant role of crude oil in the energy markets. Overall, our analysis reveal the interdependencies between refined petroleum product markets, besides the pronounced impact of crude oil on energy markets. JEL Classification: Q41 - Energy: Demand and Supply; Prices; C30 - Multiple or Simultaneous Equation Models; Multiple Variables: General