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Are Regional Oil Markets Growing Closer Together?: An Arbitrage Cost Approach

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  • Andrew N. Kleit

Abstract

A large number of papers published in the last decade have attempted to show that energy markets have grown more integrated. These articles attempt to infer that various markets have become more "unified" because the correlation (in various forms) of prices between markets has increased during the last several years. This article suggests that a more appropriate modeling technique based on the theory of arbitrage as presented in Spiller and Wood (1988a and b), is better suited to answering this question. In this paper, the arbitrage technique is extended and applied to light crude oil markets in the 1990s. Arbitrage costs between markets are estimated. In addition, the hypothesis that crude oil markets have converged during this period is tested. Substantial though mixed support is gained for this hypothesis.

Suggested Citation

  • Andrew N. Kleit, 2001. "Are Regional Oil Markets Growing Closer Together?: An Arbitrage Cost Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-15.
  • Handle: RePEc:aen:journl:2001v22-02-a01
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    Citations

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    Cited by:

    1. Reboredo, Juan C., 2011. "How do crude oil prices co-move?: A copula approach," Energy Economics, Elsevier, vol. 33(5), pages 948-955, September.
    2. repec:ipg:wpaper:2014-502 is not listed on IDEAS
    3. Christian Growitsch & Marcus Stronzik & Rabindra Nepal, 2015. "Price Convergence and Information Efficiency in German Natural Gas Markets," German Economic Review, Verein für Socialpolitik, vol. 16(1), pages 87-103, February.
    4. Liu, Li & Chen, Ching-Cheng & Wan, Jieqiu, 2013. "Is world oil market “one great pool”?: An example from China's and international oil markets," Economic Modelling, Elsevier, vol. 35(C), pages 364-373.
    5. Li, Raymond & Leung, Guy C.K., 2011. "The integration of China into the world crude oil market since 1998," Energy Policy, Elsevier, vol. 39(9), pages 5159-5166, September.
    6. Atanu Ghoshray and Tatiana Trifonova, 2014. "Dynamic Adjustment of Crude Oil Price Spreads," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    7. repec:dau:papers:123456789/1245 is not listed on IDEAS
    8. Bertrand Candelon & Marc Joëts & Sessi Tokpavi, 2012. "Testing for crude oil markets globalization during extreme price movements," Post-Print hal-01411687, HAL.
    9. repec:dau:papers:123456789/1244 is not listed on IDEAS
    10. repec:dau:papers:123456789/95 is not listed on IDEAS
    11. Candelon, Bertrand & Joëts, Marc & Tokpavi, Sessi, 2013. "Testing for Granger causality in distribution tails: An application to oil markets integration," Economic Modelling, Elsevier, vol. 31(C), pages 276-285.
    12. Fattouh, Bassam, 2010. "The dynamics of crude oil price differentials," Energy Economics, Elsevier, vol. 32(2), pages 334-342, March.
    13. Balaguer, Jacint & Ripollés, Jordi, 2014. "Are the transport fuel retail markets regionally integrated in Spain? Evidence from price transmission," Economic Modelling, Elsevier, vol. 42(C), pages 323-332.
    14. repec:dau:papers:123456789/1227 is not listed on IDEAS
    15. Chen, K.C. & Chen, Shaoling & Wu, Lifan, 2009. "Price causal relations between China and the world oil markets," Global Finance Journal, Elsevier, vol. 20(2), pages 107-118.
    16. Jia, Xiaoliang & An, Haizhong & Sun, Xiaoqi & Huang, Xuan & Wang, Lijun, 2017. "Evolution of world crude oil market integration and diversification: A wavelet-based complex network perspective," Applied Energy, Elsevier, vol. 185(P2), pages 1788-1798.
    17. Elder, John & Miao, Hong & Ramchander, Sanjay, 2014. "Price discovery in crude oil futures," Energy Economics, Elsevier, vol. 46(S1), pages 18-27.
    18. Hache, E. & Massol, O., 2016. "Sanctions against Iran: An assessment of their global impact through the lens of international methanol prices," Working Papers 14973, Department of Economics, City University London.
    19. McKitrick, Ross & Wood, Joel, 2013. "Co-fluctuation patterns of per capita carbon dioxide emissions: The role of energy markets," Energy Economics, Elsevier, vol. 39(C), pages 1-12.
    20. Li, Huajiao & An, Haizhong & Fang, Wei & Wang, Yue & Zhong, Weiqiong & Yan, Lili, 2017. "Global energy investment structure from the energy stock market perspective based on a Heterogeneous Complex Network Model," Applied Energy, Elsevier, vol. 194(C), pages 648-657.
    21. Kaufmann, Robert K. & Banerjee, Shayan, 2014. "A unified world oil market: Regions in physical, economic, geographic, and political space," Energy Policy, Elsevier, vol. 74(C), pages 235-242.
    22. Ayman Omar, 2015. "West Texas Intermediate and Brent Spread during Organization of the Petroleum Exporting Countries Supply Disruptions," International Journal of Energy Economics and Policy, Econjournals, vol. 5(3), pages 693-703.
    23. Aisabokhae, Ruth A. & Bizimana, Jean-Claude, 2012. "Market Extent for Bioenergy Products: An Analysis Using Weekly Price Data," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125282, Agricultural and Applied Economics Association.
    24. Doucet, Joseph & Kleit, Andrew & Fikirdanis, Serkan, 2013. "Valuing electricity transmission: The case of Alberta," Energy Economics, Elsevier, vol. 36(C), pages 396-404.

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    JEL classification:

    • F0 - International Economics - - General

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