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The Incidence of an Oil Glut: Who Benefits from Cheap Crude Oil in the Midwest?

Severin Borenstein and Ryan Kellogg

Year: 2014
Volume: Volume 35
Number: Number 1
DOI: 10.5547/01956574.35.1.2
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Beginning in early 2011, crude oil production in the U.S. Midwest and Canada surpassed the pipeline capacity to transport it to the Gulf Coast where it could access the world oil market. As a result, the U.S. "benchmark" crude oil price in Cushing, Oklahoma, declined substantially relative to internationally traded oil. In this paper, we study how this development affected prices for refined products, focusing on the markets for motor gasoline and diesel. We find that the relative decrease in Midwest crude oil prices did not pass through to wholesale gasoline and diesel prices. This result is consistent with evidence that the marginal gallon of fuel in the Midwest is still imported from coastal locations. Our findings imply that investments in new pipeline infrastructure between the Midwest and the Gulf Coast, such as the southern segment of the controversial Keystone XL pipeline, will not raise gasoline prices in the Midwest.

Fuel Prices and Station Heterogeneity on Retail Gasoline Markets

Justus Haucap, Ulrich Heimeshoff, and Manuel Siekmann

Year: 2017
Volume: Volume 38
Number: Number 6
DOI: 10.5547/01956574.38.6.jhau
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We empirically investigate how and why price levels differ across gasoline stations, using the first full year from a novel panel data set including price quotes from virtually all gas stations in Germany. Our analysis specifically explores the role of station heterogeneity in explaining price differences across gasoline stations. Key determinants of price levels are found to be ex-refinery prices as key input costs, a station's location on roads or highway service areas, and brand recognition. A lower number of station-specific services implies lower fuel price levels, as does a more heterogeneous local competitive environment.

Pipes, Trains and Automobiles: Explaining British Columbia's High Wholesale Gasoline Prices

G. Kent Fellows

Year: 2022
Volume: Volume 43
Number: Number 5
DOI: 10.5547/01956574.43.5.gfel
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I modify a cournot oligopoly model to examine the effect of pipeline capacity constraints on regional wholesale gasoline prices. The model includes a discontinuous supply function for a common input (transportation) with a constrained low-cost mode (pipelines) and an unconstrained higher cost mode (rail, truck or barge). The equilibrium outcome demonstrates a piecewise linear relationship between the low-cost capacity constraint and the equilibrium price. The shape of the transportation supply curve is also shown to affect the relationship between firm average marginal costs and the equilibrium price. I also present a test of the model's implications, demonstrating that it is able to explain a recent pronounced increase in wholesale gasoline prices for cities in British Columbia Canada. While the exercise is motivated by a specific market, the model and its implications apply to a broad set of discussions on inter-regional arbitrage in the context of imperfect competition.

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