Influence of crude oil prices, exchange rates on petroleum product prices: Empirical evidence in Vietnam in the period 2018-2023

Abstract

This study is carried out to evaluate the effects of WTI crude oil prices and exchange rates on the prices of Vietnam petroleum products (RON95-III, E5 RON92-II, DO 0.05S-II, KO), using weekly time-series data from August 22nd, 2018, to August 21st, 2023. The results from Error Correction Model and Asymmetric Error Correction Model show that: (1) In the short term, there exists a positive causality from the WTI crude oil prices to prices of three products (E5 RON92-II, DO 0.05S-II, KO), while no causality is found from the exchange rates to prices of the majority of petroleum products (except for DO 0.05S-II); (2) In the long term, prices of all petroleum products respond to changes in crude oil prices; however, only prices of DO 0.05S-II and KO are impacted by changes in exchange rates; (3) The asymmetric relationship in the short term only exists between crude oil prices and E5 RON92-II prices, and between exchange rates and DO 0.05S-II prices. Those petroleum product price adjustments follow the “Rockets and feathers” phenomenon. In the long term, there exist asymmetric responses of RON95-III and KO prices to crude oil price changes, but these adjustments diverge from the “Rockets and feathers” pattern. Furthermore, the research proposes increased government involvement in the energy sector and expenditure management through the Petroleum Price Stabilization Fund in order to set fair prices and minimize welfare losses associated with raising the cost of petroleum products for consumers.