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

41 Pages Posted: 31 Mar 2017  

Mark Agerton

Rice University

Gregory Upton Jr.

Louisiana State University, Baton Rouge

Date Written: March 10, 2017

Abstract

Over the past five years the U.S. domestic crude benchmark, WTI, diverged considerably from its foreign counterpart, Brent. Some studies pointed to the crude oil export ban as the main culprit for this divergence, but pipeline capacity was also scarce during this time. To understand the drivers of domestic crude oil discounts, we decompose domestic price differentials for multiple crudes into the contributions of shipping and export constraints. We find that scarce pipeline capacity explains the majority of the deviation of mid-continent crude oil prices from their longrun relationship with Brent crude, while refining changes explain very little. This implies that the deleterious effects of the export ban may have been exaggerated.

Keywords: Crude Oil Prices; Crude Oil Export Ban; Shale Oil; Crude Oil Pipelines; Crude-By-Rail; Congestion Pricing; Oil Refining

JEL Classification: Q33; Q35; Q43

Suggested Citation

Agerton, Mark and Upton, Gregory, Decomposing Crude Price Differentials: Domestic Shipping Constraints or the Crude Oil Export Ban? (March 10, 2017). USAEE Working Paper No. 17-307. Available at SSRN: https://ssrn.com/abstract=2942989 or http://dx.doi.org/10.2139/ssrn.2942989

Mark Agerton (Contact Author)

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

Gregory Upton Jr.

Louisiana State University, Baton Rouge ( email )

Baton Rouge, LA 70803
United States

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