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On the Price Spread of Benchmark Crude Oils: A Spatial Price Equilibrium Model

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  • Bennett, Max
  • Yuan, Yue

Abstract

Benchmark crude oils exhibited dramatic fluctuations in price spreads in the recent decade, a phenomenon that rarely occurred in earlier decades. This paper develops a rational expectations two-period model of spatial price equilibrium, and departs from standard models by assuming increasing marginal costs of transportation and storage. We econometrically validate our model using a dataset that covers an extended time period. The model allows us to determine the underlying causes of the unique phenomenon of drastically changing crude oil price spreads over the past decade.

Suggested Citation

  • Bennett, Max & Yuan, Yue, 2016. "On the Price Spread of Benchmark Crude Oils: A Spatial Price Equilibrium Model," MPRA Paper 76024, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:76024
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    File URL: https://mpra.ub.uni-muenchen.de/76024/1/MPRA_paper_76024.pdf
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    References listed on IDEAS

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    Cited by:

    1. Yakubu Abdul-Salam, 2019. "Evaluating the Impact of Brexit on Natural Gas Trade between the UK and the EU – A Spatial Equilibrium Analysis," CEERP Working Paper Series 008, Centre for Energy Economics Research and Policy, Heriot-Watt University.
    2. Bravo Caro, José Manuel & Golpe, Antonio A. & Iglesias, Jesús & Vides, José Carlos, 2020. "A new way of measuring the WTI – Brent spread. Globalization, shock persistence and common trends," Energy Economics, Elsevier, vol. 85(C).

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    More about this item

    Keywords

    Crude oil; price spread; spatial price equilibrium;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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