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Location Basis Differentials in Crude Oil Prices

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  • Phat V. Luong, Bruce Mizrach, and Yoichi Otsubo

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.

Suggested Citation

  • Phat V. Luong, Bruce Mizrach, and Yoichi Otsubo, 2019. "Location Basis Differentials in Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    • Handle: RePEc:aen:journl:ej40-si2-mizrach
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    Cited by:

    1. Costin Radu Boldea & Bogdan Ion Boldea & Tiberiu Iancu, 2023. "The Pandemic Waves’ Impact on the Crude Oil Price and the Rise of Consumer Price Index: Case Study for Six European Countries," Sustainability, MDPI, vol. 15(8), pages 1-15, April.
    2. Gao, Xin & Li, Bingxin & Liu, Rui, 2023. "The relative pricing of WTI and Brent crude oil futures: Expectations or risk premia?," Journal of Commodity Markets, Elsevier, vol. 30(C).
    3. Luong, Phat V., 2023. "Crude oil pipeline constraints: A tale of two shales," Resources Policy, Elsevier, vol. 80(C).

    More about this item

    JEL classification:

    • F0 - International Economics - - General

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