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A Short-Run Model of Petroleum Product Supply

Abstract:
This paper presents a monthly econometric model of petroleum refining supply in the United States. The model is derived using a multiproduct restricted cost function with adjustment costs. The Euler equations are used to estimate the convenience yield from holding inventories. Short-run petroleum product prices are closely related to crude oil costs but the responses vary by product. Shipments and inventory levels are also important factors in short-run price determination. An examination of the distillate fuel oil price surge of December 1989 and the Exxon Valdez accident of March 1989 suggest that shifts in the derived demand for crude oil may be a major factor in the transmission of demand shocks to product prices.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination

Keywords: Oil refinining, Econometric model, Oil product prices

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No2-4


Published in Volume 13, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.