The sugar-ethanol-oil nexus in Brazil: Exploring the pass-through of international commodity prices to national fuel prices
2022
Palazzi, Rafael Baptista | Meira, Erick | Klotzle, Marcelo Cabus
Understanding the pass-through mechanisms from international energy and agricultural markets to domestic energy markets is crucial for policy making, fuel hedging and risk management strategies. We provide a first insight into the asymmetric effects of international energy and agricultural commodity prices on fuel prices in Brazil, a country that supplies much of the ethanol that the world demands. Closing prices data for the years between 2015 and 2020 are considered under a multivariate nonlinear autoregressive distributed lag (NARDL) framework. Our findings suggest that prices for the reformulated blendstock for oxygenate blending (RBOB) have had both short- and long-run asymmetric effects on domestic gasoline prices in Brazil, while surges in heating oil (HO) prices have led to declines in Brazilian ethanol prices. We also consider nonparametric causality tests, which support the findings towards a considerable influence of HO on Brazilian ethanol price returns. Policy and stakeholder implications are further discussed, along with avenues for future studies.
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