Location Basis Differentials in Crude Oil Prices

Phat V. Luong; Bruce Mizrach; Yoichi Otsubo

doi:10.5547/01956574.40.SI2.PLUO

Location Basis Differentials in Crude Oil Prices

Phat V. Luong, Bruce Mizrach, Yoichi Otsubo

Research output: Contribution to journal › Article › peer-review

Abstract

We examine the long-run pricing relationship among crude oil prices at the North Sea (Brent) and Cushing (WTI) delivery points. The Brent-WTI location basis differential is stable until December 2009, but it widens to record levels in the next two years. We report on recent changes in the crude oil market that causes the prices to move apart. Brent and WTI prices are cointegrated prior to this structural break, but not between 2010 and 2015. Since the U.S. lifted the crude oil export ban in December 2015, Brent and WTI prices have reintegrated. U.S. retail gasoline prices respond to Brent and WTI before January 2010 and then only to Brent afterwards.

Original language	English (US)
Pages (from-to)	41-58
Number of pages	18
Journal	Energy Journal
Volume	40
Issue number	2
DOIs	https://doi.org/10.5547/01956574.40.SI2.PLUO
State	Published - Dec 2019
Externally published	Yes

ASJC Scopus subject areas

Economics and Econometrics
General Energy

Keywords

Basis differential
Brent
West Texas Intermediate

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10.5547/01956574.40.SI2.PLUO

Cite this

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abstract = "We examine the long-run pricing relationship among crude oil prices at the North Sea (Brent) and Cushing (WTI) delivery points. The Brent-WTI location basis differential is stable until December 2009, but it widens to record levels in the next two years. We report on recent changes in the crude oil market that causes the prices to move apart. Brent and WTI prices are cointegrated prior to this structural break, but not between 2010 and 2015. Since the U.S. lifted the crude oil export ban in December 2015, Brent and WTI prices have reintegrated. U.S. retail gasoline prices respond to Brent and WTI before January 2010 and then only to Brent afterwards.",

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AB - We examine the long-run pricing relationship among crude oil prices at the North Sea (Brent) and Cushing (WTI) delivery points. The Brent-WTI location basis differential is stable until December 2009, but it widens to record levels in the next two years. We report on recent changes in the crude oil market that causes the prices to move apart. Brent and WTI prices are cointegrated prior to this structural break, but not between 2010 and 2015. Since the U.S. lifted the crude oil export ban in December 2015, Brent and WTI prices have reintegrated. U.S. retail gasoline prices respond to Brent and WTI before January 2010 and then only to Brent afterwards.

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Location Basis Differentials in Crude Oil Prices

Abstract

ASJC Scopus subject areas

Keywords

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