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On the WTI-WCS Oil Price Differential

Author

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  • Libo Xu

    (Lakehead University)

Abstract

This paper investigates the relationship between the international oil market and the West Texas Intermediate (WTI)—Western Canadian Select (WCS) price differential. Monthly data were collected for January 2005 to September 2023 from the U.S. Energy Information Administration, the Federal Reserve Bank of Dallas, the Canada Energy Regulator, and the Government of Alberta. The paper finds that a negative oil supply shock increases the differential with a delay. On the other hand, a positive oil-specific demand shock increases the WTI-WCS differential with a delay, while a positive aggregate demand shock increases the differential persistently. Overall, the three shocks in the international oil market account for 61% of the variability in the price differential in the long run. The aggregate demand shock is the most substantial factor in explaining the variation in the WTI-WCS differential in the long run. This indicates that the global oil market demand has an asymmetric effect on WTI and WCS prices.

Suggested Citation

  • Libo Xu, 2024. "On the WTI-WCS Oil Price Differential," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 52(2), pages 67-77, September.
    • Handle: RePEc:kap:atlecj:v:52:y:2024:i:2:d:10.1007_s11293-024-09801-3
    DOI: 10.1007/s11293-024-09801-3
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    References listed on IDEAS

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    Keywords

    C32; Q47;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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