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Cointegration Analysis of the Relationship between the Prices of Crude Oil and Its Petroleum Products in Ghana

This paper investigates the relationship between prices of crude oil and its petroleum products such as Gasoline, Gas oil, Residual fuel oil (RFO) and premix fuel in Ghana. The monthly data of Brent crude oil and the prices of petroleum products for the period from January 2009 to June 2019 were used. 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 petroleum products. An ARDL-based error correction model (ECM) was used to estimate the short and long run effect between the variables. Results from the cointegration test revealed the inexistence of a long run relationship between the prices of crude oil and premix fuel prices. It was established that while crude oil prices have both short and the long run effects on the prices of Gasoline, Gas oil and Residual fuel oil, inflation had significant positive effect on only the prices of residual fuel. Exchange rate had significant negative effects on the prices of Gasoline, Gasoil and Residual fuel oil in both the short and 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 no causal relationship between Inflation rate and Gasoline, Gas oil.