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Threshold Cointegration Analysis of Crude Oil Benchmarks

Abstract:
The paper examines the dynamic relationship between pairs of four oil benchmark prices (i.e., West Texas Intermediate, Brent, Dubai, and Maya), which have different physical properties and locations. The results indicate that there is a long-run equilibrium relationship between different benchmarks, regardless of their properties and locations. More importantly, there is asymmetry in the adjustment process that is specifically modeled and implications are discussed.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels, Q35: Hydrocarbon Resources, Q02: Commodity Markets, Q37: Nonrenewable Resources and Conservation: Issues in International Trade

Keywords: Crude oil, asymmetric adjustment, cointegration, WTI, Brent, Dubai, Maya

DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No4-4


Published in Volume 29, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.