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Location Basis Differentials in Crude Oil Prices

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  • 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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    1. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
    2. 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.
    3. Severin Borenstein & Ryan Kellogg, 2014. "The Incidence of an Oil Glut: Who Benefits from Cheap Crude Oil in the Midwest?," The Energy Journal, , vol. 35(1), pages 15-34, January.
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    Cited by:

    1. Luong, Phat V., 2023. "Crude oil pipeline constraints: A tale of two shales," Resources Policy, Elsevier, vol. 80(C).
    2. 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.
    3. Gronwald, Marc & Jin, Xin, 2024. "Measuring world oil market integration with a Thick Pen," Energy Economics, Elsevier, vol. 130(C).
    4. 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).

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    More about this item

    Keywords

    Brent; West Texas Intermediate; Basis differential;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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