Abstract
We propose a novel spatial panel quantile regression method to investigate the impact of crude oil and carbon prices and neighboring fuel prices on regional retail fuel prices in the EU markets. This approach captures the changing price shock propagation and cross-market dependency of retail fuel markets at different levels of quantiles. Empirically, we show that the impact of these determinants on retail fuel prices are heterogeneous and asymmetric across quantiles. Specifically, we find a positive price spill-over from neighboring countries’ retail fuel markets to the local retail fuel markets (spatial effects) at different quantiles. The impact of carbon futures prices on the regional retail fuel markets is positive with low crude oil prices and increases across quantile levels. Crude oil prices have a positive influence on retail fuel prices, especially at low quantiles. Our fresh results hold critical implications for energy risk management and policy-making processes.
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