Examining the nature of the relationship between Tapis crude oil and Singapore petrol prices

Fuel prices play a crucial role in the supply side of many economies

across the globe. Hence, it is important to ensure that fuel pricing is efficient

and free from any asymmetric behaviour. This paper examines the long- and

short-run relationships between the price of unleaded petrol in Singapore

(Mogas95) and the price of Tapis crude oil using 4,929 daily observations

(4 June 1993–25 April 2012). As expected, we found that these two key energy

indicators are cointegrated. We then developed a modelling framework that

allowed us to test for adjustment asymmetries that distinguish between the size

and sign of disequilibria, proxied by three different error correction terms. We

found no significant evidence of any asymmetric pricing behaviour and market

inefficiency. However, our results revealed a significant weekly cyclical

pattern, with petrol being more expensive on Thursdays/Fridays than the rest of

the week.