A Model for the Global Crude Oil Market Using a Multi-Pool MCP Approach
AbstractThis paper proposes a partial equilibrium model to describe the global crude oil market. Pricing on the global crude oil market is strongly influenced by price indices such as WTI (USA) and Brent (Northwest Europe). Adapting an approach for pool-based electricity markets, the model captures the particularities of these benchmark price indices and their influence on the market of physical oil. This approach is compared to a model with bilateral trade relations as is traditionally used in models of energy markets. With these two model approaches, we compute the equilibrium solutions for several market power scenarios to investigate whether the multi-pool approach may be better suited than the bilateral trade model to describe the crude oil market. The pool-based approach yields, in general, results closer to observed quantities and prices, with the best fit obtained by the scenario of an OPEC oligopoly. We conclude that the price indices indeed are important on the global crude market in determining the prices and flows, and that OPEC effectively exerts market power, but in a non-cooperative way.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 869.
Length: 16 p.
Date of creation: 2009
Date of revision:
crude oil; market structure; cartel; pool market; simulation model;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-05 (All new papers)
- NEP-CMP-2009-04-05 (Computational Economics)
- NEP-COM-2009-04-05 (Industrial Competition)
- NEP-ENE-2009-04-05 (Energy Economics)
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- Clemens Haftendorn & Franziska Holz & Christian von Hirschhausen, 2010. "COALMOD-World: A Model to Assess International Coal Markets until 2030," Discussion Papers of DIW Berlin 1067, DIW Berlin, German Institute for Economic Research.
- Egging, Ruud, 2013. "Benders Decomposition for multi-stage stochastic mixed complementarity problems â€“ Applied to a global natural gas market model," European Journal of Operational Research, Elsevier, Elsevier, vol. 226(2), pages 341-353.
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