Brent vs. West Texas Intermediate in the US petro derivatives price formation

In this paper, we apply the spatial panel model to explore the relationship between the dynamic of two types of crude oil prices (WTI and Brent crude oil) and their refined products over time. Considering the turbulent months of 2011, when Cushing Oklahoma had reached capacity and the crude oil export ban removal in 2015 as breakpoints, we apply this method both in the full sample and the three resultant regimes. First, results suggest our results show that both WTI and Brent display very similar behaviour with the refined products. Second, when attending to each regime, results derived from the first and third regimes are quite similar to the full sample results. Therefore, during the second regime, Brent crude oil became the benchmark in the petrol market, and it influenced the distillate products. Furthermore, our model can let us determine the price-setters and price-followers in the price formation mechanism through refined products. These results possess important considerations to policymakers and the market participants and the price formation.