Price Relationships in Vegetable Oil and Energy Markets

The markets for vegetable oils have expanded significantly in recent decades in association with the diversification in their use across final consumption as food, industrial inputs and fuels. International markets for such products remain critically important for several developing countries yet they have become more integrated globally and volatility has increased as financial determinants of demand have become more prominent. This paper reviews these developments in vegetable oil and energy markets and tests for changes in their level of integration over time. It further examines the dependence of prices in these markets on financial volatility and overall economic performance, offering scenarios for vegetable oil market behaviour in response to low energy prices, tighter monetary policy and strong demand in importing regions. The results are particularly strong in response to changes in interest rates, supporting the perspective that financial determinants of demand have strengthened.