The Relationship between Refined Retail Oil Prices and Crude Oil Prices: A Tale of Three Cities in the Greater Bay Area of China

This article investigates the long- and short-term relationships between refined retail oil prices and the international crude oil price in Shenzhen, Hong Kong, and Macao. Using an asymmetric error correction model (AECM), we find that, first, there is a long-term relationship between retail petrol and diesel prices and the crude oil prices for all three cities. Second, the results of the asymmetric adjustments show that the retail diesel prices in Hong Kong and both petrol and diesel prices in Macao are adjusted upward faster than downward. The results imply that these markets in Hong Kong and Macao are not competitive. However, there is no evidence of asymmetric price adjustment for Shenzhen.