Do diesel prices respond asymmetrically to crude oil price changes? The case of Spain

Abstract

In this work we will study the transmission of Brent prices to retail gasoil prices in Spain. First, we describe the main theoretical aspects related with pricing behavior asymmetries. Second, we carry out a review of literature about the international price transmission, and we focus on pricing behavior in fuel oil markets. Second, we take in to account the history of Spanish fuel oil sector and we found some potential reasons that explain the possible existence of asymmetric price transmission in Spain. In empirical sections we search the time necessary to transmit the Brent oil prices to gasoil prices. We will use a simple asymmetric autoregressive distributed lag model to measure the degree of transmission after a shock, and to know if there is asymmetric transmission. By considering weekly data for the period 3 January 2005 to 15 December 2014, our empirical results suggest the existence of asymmetric price transmission in the Spanish fuel markets.