Économie et Statistique n° 359-360 - Business Cycle Report
Fuel Prices are more Sensitive to Increases than to Decreases in Crude Oil Prices
Fuel Prices are more Sensitive to Increases than to Decreases in Crude Oil Prices An econometric approach using French data confirms the presence of significant asymmetries in the passing on of crude oil price shocks to ex-tax pump prices. Three refined products are analysed: premium grade leaded petrol, diesel and domestic fuel-oil. Across the three fuels studied, an increase in the cost of a barrel of crude oil in French currency is incorporated more quickly into the pump price than a decrease. Pump prices respond to a sustained crude oil price shock by gradually adjusting up or down towards a long-run equilibrium price within half a year to a year. However, over a period of a few months, the downward adjustment is smaller in absolute value than the upward adjustment. This time span measures the duration of the asymmetry. Beyond this, it is no longer certain whether the price adjustment in response to a negative crude oil shock is smaller in absolute value than it would have been with a positive shock. This temporary deviation in adjustment speeds reduces the consumer's purchasing power and the study was unable to how whether this is absorbed in the long run. The observed asymmetries between the ends of the crude-oil-to-pump-price chain have their roots in each of the intermediate stages of production and distribution. They are nevertheless greater at the production stage than at the consumption stage. This difference can be explained by the fact that the market is more oligopolistic at the production stage than at the consump-tion stage. It can also be linked with the asymmetry of the upward and downward stock adjustment cost: it costs more to destock than to stock. This explanation does not supplant those based on the presence of information asymmetries, since asymmetries exist at the consumption stage, at least for certain products.