The dynamics of crude oil price differentials

Working paper

We model crude oil price differentials as a two-regime threshold autoregressive (TAR) process using Caner and Hansen’s (2001) method. While standard unit root tests, such as the Augmented Dickey–Fuller (ADF), are inconclusive in some instances on whether oil price differentials follow a stationary process, the null hypothesis of unit root can be strongly rejected based on the threshold unit root test, even for crude oils with very different qualities. Our results also indicate that the adjust...

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Authors: Fattouh, B

• Publication status: Published
• Peer review status: Reviewed (other)
• Publisher: Oxford Institute for Energy Studies Publisher's website
• Series: OIES paper
• Publication date: 2008-01-01
• Paper number: M39
• ISBN: 9781901795707
• Language: English
• Keywords: regionalization; oil price; arbitrage; oil markets; crude oil; shocks; OIES; differentials