Alaska north slope crude oil price and the behavior of diesel prices in California

Bahram Adrangi, Arjun Chatrath, Kambiz Raffiee, Ronald D. Ripple

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

In this paper we analyze the price dynamics of Alaska North Slope crude oil and L.A. diesel fuel prices. We employ VAR methodology and bivariate GARCH model to show that there is a strong evidence of a uni-directional causal relationship between the two prices. The L.A. diesel market is found to bear the majority of the burden of convergence when there is a price spread. This finding may be seen as being consistent with the general consensus that price discovery emanates from the larger, more liquid market where trading volume is concentrated. The contestability of the West Coast crude oil market tends to cause it to react relatively competitively, while the lack of contestability for the West Coast diesel market tends to limit its competitiveness, causing price adjustment to be slow but to follow the price signals of crude oil. Our findings also suggest that the derived demand theory of input pricing may not hold in this case. The Alaska North Slope crude oil price is the driving force in changes of L.A. diesel price.
Original languageEnglish
Pages (from-to)29-42
Number of pages14
JournalEnergy Economics
Volume23
Issue number1
DOIs
Publication statusPublished - 2001
Externally publishedYes

Keywords

  • price of Alaska north slope crude oil
  • diesel fuel prices in California

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