Location Basis Differentials in Crude Oil Prices
29 Pages Posted: 15 May 2014 Last revised: 17 Mar 2019
Date Written: March 15, 2019
We examine the long-run pricing relationship among crude oil prices at the North Sea (Brent) and Cushing (WTI) delivery points. The Brent-WTI location basis differential is stable until January 2010, but it widens to record levels in the next two years. Brent and WTI prices are cointegrated prior to this structural break, but not between 2010 and 2015. Since the U.S. lifted the crude oil export ban in December 2015, Brent and WTI prices have reintegrated. U.S. retail gasoline prices respond to Brent and WTI before January 2010 and then only to Brent afterwards. We report on recent changes in the supply chain designed to profit from the Brent-WTI spread.
Keywords: Brent, West Texas Intermediate, Crude Oil, Basis Differential
JEL Classification: G12, G14, G18
Suggested Citation: Suggested Citation