Cointegration analysis of the relationship between the prices of crude oil and petroleum products in Ghana

Abstract

This research work sought to investigate the relationship between crude oil prices, dollar-cedi exchange rate and the prices of petroleum products in Ghana. The nation depends heavily on crude oil and its refined products for almost all productive economic activities. The research is based on a monthly data of Brent crude oil, gasoline, gas oil, residual fuel oil and premix fuel for the period from January 2009 to June 2019. The Autoregressive Distributed Lag (ARDL) Bounds cointegration test was employed to show the existence of a long run relationship between crude oil prices and the prices of gasoline, gas oil and residual fuel oil. Results from the cointegration test revealed the inexistence of a long run relationship between the prices of crude oil and premix fuel prices. An ARDL based error correction model (ECM) was used to estimate the short and long run effect of between the variables. It was established that crude oil prices have a significant positive effect on the prices of gasoline, gas oil and residual fuel oil in both the short and the long run. Exchange rate had a significant negative effect on the prices of Gasoline, Gasoil and Residual fuel oil in both the short and long run. Inflation on the other had had a significant positive effect on only the prices of Residual fuel oil in both the short and the long run. Results from the Wald’s Granger Causality test indicated a uni-causal relationship running from Crude oil to Gasoline, Gas oil and RFO. There is a bi-causal relationship between Exchange rate and Gasoline, Gas oil and RFO. There is a uni-causal relationship running from Inflation rate to RFO. There is no causal relationship between Inflation rate and Gasoline, Gas oil.