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Location Basis Differentials in Crude Oil Prices

Author

Listed:
  • Phat V. Luong
  • Bruce Mizrach
  • 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 & Yoichi Otsubo, 2019. "Location Basis Differentials in Crude Oil Prices," The Energy Journal, , vol. 40(2_suppl), pages 41-58, December.
    • Handle: RePEc:sae:enejou:v:40:y:2019:i:2_suppl:p:41-58
    DOI: 10.5547/01956574.40.SI2.pluo
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    References listed on IDEAS

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    5. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
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