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A Note on Saudi Arabian Price Discrimination

Author

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  • Ronald Soligo
  • Amy Myers Jaffe

Abstract

Despite the development of an international market for crude petroleum and the resulting opportunities for arbitrage, Saudi oil continues to be shipped to markets in the U.S. and Europe when closer markets are available. Furthermore, these Western sales take place at fob (Saudi Arabia) prices that are lower than for exports to customers in the Far East. This note explains these Saudi price and trade flow anomalies in terms of a model of constrained price discrimination in which the quality adjusted price differential between Asian and European prices cannot exceed the differential in tanker rates to the two markets. The conditions under which price discrimination is likely to continue are also explored. The focus is on the West European and Far East oil markets but the argument applies to the U.S. market as well. Implications of Saudi marketing practices for new oil producers such as those in Central Asia are also discussed.

Suggested Citation

  • Ronald Soligo & Amy Myers Jaffe, 2000. "A Note on Saudi Arabian Price Discrimination," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 121-133.
    • Handle: RePEc:aen:journl:2000v21-01-a06
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    Citations

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    Cited by:

    1. Weiyu Gao & Peter Hartley & Robin Sickles, 2009. "Optimal dynamic production from a large oil field in Saudi Arabia," Empirical Economics, Springer, vol. 37(1), pages 153-184, September.
    2. Parnes, Dror, 2019. "Heterogeneous noncompliance with OPEC's oil production cuts," Energy Economics, Elsevier, vol. 78(C), pages 289-300.
    3. Tilak K. Doshi & Neil Sebastian D’Souza, . "The ‘Asia Premium’ in Crude Oil Markets and Energy Market Integration," Chapters,, Economic Research Institute for ASEAN and East Asia (ERIA).
    4. 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.
    5. Kaufmann, Robert K., 2016. "Price differences among crude oils: The private costs of supply disruptions," Energy Economics, Elsevier, vol. 56(C), pages 1-8.
    6. AlKathiri, Nader & Al-Rashed, Yazeed & Doshi, Tilak K. & Murphy, Frederic H., 2017. "“Asian premium” or “North Atlantic discount”: Does geographical diversification in oil trade always impose costs?," Energy Economics, Elsevier, vol. 66(C), pages 411-420.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

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