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Fuel Subsidies, the Oil Market and the World Economy

Nathan S. Balke, Michael Plante, and Mine Yücel

Year: 2015
Volume: Volume 36
Number: Adelman Special Issue
DOI: 10.5547/01956574.36.SI1.nbal
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Abstract:
This paper studies the effects of oil producing countries' fuel subsidies on the oil market and the world economy. We identify 24 oil-producing countries with fuel subsidies with retail fuel prices that are about 34 percent of the world price. We construct a two-country model where one country represents the oil-exporting subsidizers and the second the oil-importing bloc, and calibrate the model to match recent data. We find that the removal of subsidies would reduce the world price of oil by six percent. The removal of subsidies is unambiguously welfare enhancing for the oil-importing countries. Removal of subsidies is welfare improving for the oil-exporting countries as well, in the baseline calibration. However, the optimal subsidy from the point of view of oil exporters is not zero, in general.



Closer to One Great Pool? Evidence from Structural Breaks in Oil Price Differentials

Michael Plante and Grant Strickler

Year: 2021
Volume: Volume 42
Number: Number 2
DOI: 10.5547/01956574.42.2.mpla
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Abstract:
We show that the oil market has become closer to �one great pool,� in the sense that price differentials between crude oils of different qualities have generally become smaller over time. We document, in particular, that many of these price differentials experienced a major structural break in or around 2008, after which there was a marked reduction in their means and volatilities. Differentials between residual fuel oil, a low-quality fuel, and higher-valued products, such as gasoline and diesel, experienced similar breaks during the same time period. A growing ability of the global refinery sector to process lower-quality crude oil and the U.S. shale boom, which has unexpectedly boosted the supply of high-quality crude oil, are two factors consistent with these changes. Differentials between crude oils of similar quality in general did not experience breaks in or around 2008, although we do find evidence of breaks at other times.





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