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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, , vol. 22(2), pages 1-15, April.
    • Handle: RePEc:sae:enejou:v:22:y:2001:i:2:p:1-15
    DOI: 10.5547/ISSN0195-6574-EJ-Vol22-No2-1
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    References listed on IDEAS

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    1. Kleit, Andrew N, 1998. "Did Open Access Integrate Natural Gas Markets? An Arbitrage Cost Approach," Journal of Regulatory Economics, Springer, vol. 14(1), pages 19-33, July.
    2. Weiner, R.J., 1991. "Is the World Oil Market "One Great Pool?"," Papers 9120, Laval - Recherche en Energie.
    3. repec:aen:journl:1991v12-03-a07 is not listed on IDEAS
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    Cited by:

    1. Robert Bacon & Silvana Tordo, 2005. "Crude Oil Price Differentials and Differences in Oil Qualities : A Statistical Analysis," World Bank Publications - Reports 18006, The World Bank Group.

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