The impact of refinery and oil demand shocks on the motor fuel market in Sweden

Abstract

This paper examines the link between the oil market and the motor fuel market in Sweden by developing a joint oil and motor fuel market in a structural VAR model. We explore the dynamic relationship between the oil market and motor fuel market (both gasoline and diesel) by focusing on the effects of oil demand and refinery shocks on motor fuel price and consumption. The results reveal opposite responses of gasoline and diesel consumption to positive oil demand shocks. Moreover, motor fuel price response to both oil demand and refinery shocks is greater than that of motor fuel consumption. We also assess the immediate and long‐run contributions of each of the shocks to the total variation of motor fuel price and consumption in the Swedish motor fuel market.