Price Dynamic, Volatility and Information Flows in the Oil Industry: A Multivariate Analysis

The relationships between crude and product prices are crucial throughout oil markets and especially so within the refining industry, where they define the refinery margin between cost of inputs (crudes) and value of outputs (products). The oil market is global but regional factors are also relevant, creating local variations in crude / product relationships. These relationships are often ambiguous, with limited in depth study to date. It is important to test and understand if there are feedback mechanisms from product to crude markets in the short run, investigating, in particular, weather shocks affecting the former also affect the latter. Consequently, the findings of this paper present relevant issues for oil market participants and their management of price risk.