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A Note on Saudi Arabian Price Discrimination

Ronald Soligo and Amy Myers Jaffe

Year: 2000
Volume: Volume21
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No1-6
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Abstract:
Despite the development of an international market for crude petroleum and the resulting opportunities for arbitrage, Saudi oil continues to be shipped to markets in the U.S. and Europe when closer markets are available. Furthermore, these Western sales take place at fob (Saudi Arabia) prices that are lower than for exports to customers in the Far East. This note explains these Saudi price and trade flow anomalies in terms of a model of constrained price discrimination in which the quality adjusted price differential between Asian and European prices cannot exceed the differential in tanker rates to the two markets. The conditions under which price discrimination is likely to continue are also explored. The focus is on the West European and Far East oil markets but the argument applies to the U.S. market as well. Implications of Saudi marketing practices for new oil producers such as those in Central Asia are also discussed.



Jump Processes in the Market for Crude Oil

Neil A. Wilmot and Charles F. Mason

Year: 2013
Volume: Volume 34
Number: Number 1
DOI: 10.5547/01956574.34.1.2
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Abstract:
In many commodity markets, the arrival of new information leads to unexpectedly rapid changes--or jumps--in commodity prices. Such arrivals suggest the assumption that log-return relatives are normally distributed may not hold. Combined with time-varying volatility, the possibility of jumps offers a potential explanation for fat tails in oil price returns. This article investigates the potential presence of jumps and time-varying volatility in the spot price of crude oil and in futures prices. The investigation is carried out over three data frequencies (Monthly, Weekly, Daily), which allows for an investigation of temporal properties. Employing likelihood ratio tests to compare among four stochastic data-generating processes, we find that that allowing for both jumps and time-varying volatility improves the model's ability to explain spot prices at each level of temporal aggregation; this combination also provides a statistically compelling improvement in model fit for futures prices at the Daily and Weekly level. At the monthly level, allowing for jumps does not provide a statistically significant increase in model fit after incorporating time-varying volatility into the model.



Decomposing Crude Price Differentials: Domestic Shipping Constraints or the Crude Oil Export Ban?

Mark Agerton and Gregory B. Upton Jr.

Year: 2019
Volume: Volume 40
Number: Number 3
DOI: 10.5547/01956574.40.3.mage
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Abstract:
Over the past decade the primary U.S. crude benchmark, WTI, diverged considerably from its foreign counterpart, Brent, sometimes selling at a steep discount. Some studies pointed to the ban on exporting U.S. crude oil production as the main culprit for this divergence. We find that scarce domestic pipeline capacity explains half to three quarters of the deviation of mid-continent crude oil prices from their long-run relationship with Brent crude. We are unable to find evidence that mismatch between domestic refining configurations and domestic crude characteristics contributed significantly to this deviation. This implies that the short-run deleterious effects of the export ban may have been exaggerated.



Turkish Straits and an Important Oil Price Benchmark: Urals

Duygu Ekin Ayasli, Yeliz Yalcin, Serkan Sahin, and M. Hakan Berument

Year: 2023
Volume: Volume 44
Number: Number 4
DOI: 10.5547/01956574.44.4.daya
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Abstract:
The Turkish Straits is one of the busiest waterways in the World. Around 4% of the world's crude oil trade passes through the Turkish Straits. We model the CIF Mediterranean price of Urals crude, one of the world's most critical medium gravity crude brands that passes through the Turkish Straits. The empirical evidence provided here suggests that congestion (measured in terms of the waiting time for entering the Turkish Straits) increases the CIF Mediterranean price of Urals crude up to 5.05% and 3.09% for the İstanbul and Çanakkale straits, respectively. However, similar supporting evidence could be found for neither an important benchmark oil (Brent) nor Iranian Light, which has similar characteristics and can be considered a close substitute for Urals crude in the Mediterranean refinery market. This shows that the Turkish Straits have an important impact on the price of this important medium crude oil in world oil markets.





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