Modelling oil product prices with due regard to proliferation of alternative fuels and tightening of technical standards

Abstract

Purpose This paper aims to clarify the relationship between oil product prices and factors describing the most crucial emerging trends in fuel consumption. The work is aimed to test the hypothesis that the proliferation of alternative fuel cars is a significant factor in determining the level of motor fuel prices. The influence of technical standards of oil products on the model parameters is also analysed. Design/methodology/approach The hypothesis testing is carried out on the basis of an econometric analysis of information regarding the North-West European commodity market and the data on the registration of alternative fuel passenger vehicles. Time series are analysed for the presence of a structural shift in the parameters of the model as a result of changes in the requirements of technical regulations for fuel. Findings The results suggest a different nature of the influence of the proliferation of alternative fuel passenger vehicles – it has little effect on diesel prices, whilst the indicators under study have a negative effect on the prices of motor gasoline. The construction of oil product price models has confirmed the impact of tightening the technical requirements for the parameters of dependence equations. Practical implications The obtained results can be used in forecasting price indicators in oil refining for strategic and investment purposes. Originality/value This paper fulfils an identified need to take into account the emerging global trends in fuel consumption to obtain reliable parameters for oil product price modelling.