Korean Energy Economic Review ISSN:1599-7057(Print) 에너지경제연구

According to the linear-quadratic inventory model, the production smoothing motivation stimulates inventory investment in response to changes in demand due to the convexity of production costs, while the motivation for stock-out avoidance generates inventory changes to reflect the future demand expectations. The purpose of this study is to assess the long-run equilibrium relationship between inventory and sales in the domestic petroleum refinery industry based on the linear-quadratic inventory model and to analyze the state-dependent dynamic characteristics of inventory changes. Empirical analysis on the oil refinery industry as a whole and main products such as gasoline and diesel confirms long-run relationships between inventory and sales and between production and sales. Estimation results indicate that the motivation for stock-out avoidance is significant in the inventory dynamics of domestic petroleum refining industry. In particular, we confirmed the non-linearity of equilibrium adjustment dependent on the supply and demand conditions in the process of converging to the target inventory level motivated by stock-out avoidance.