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Regionalization in the World Crude Oil Market: Further Evidence

Abstract:
This paper extends the tests of Weiner's (1991) regionalization hypothesis in Gillen (1997), which employed monthly data, to weekly data from a more recent period (1991:4-1996:52). The higher frequency data allows us to analyze the co-movement of prices for similar quality crude oils from different regions of the world in shorter periods of time. In addition to the full sample, two subperiods (one of falling prices, 1991:4-93:52 and the other of rising prices, 1994:1 96:52) are analyzed. The results are usually similar to those from Gillen (1997) which rejected regionalization, but the comparison of the two subperiods leads to some interesting conclusions. First, prices (including that of Saudi Arabian Heavy) appear to be more in line with each other during tight market conditions than during weak market conditions. Second, the global benchmark role of WTI and UK Brent is reinforced.

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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: L71: Mining, Extraction, and Refining: Hydrocarbon Fuels, Q31: Nonrenewable Resources and Conservation: Demand and Supply; Prices, Q38: Nonrenewable Resources and Conservation: Government Policy, D40: Market Structure, Pricing, and Design: General, D47: Market Design

Keywords: World Oil Market, cointegration, unit-root, oil prices

DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No1-7

Published in Volume20, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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