Crude Oil Price Differentials and Pipeline Infrastructure

42 Pages Posted: 3 Jan 2018 Last revised: 16 Jan 2022

See all articles by Shaun McRae

Shaun McRae

ITAM, Centro de Investigación Económica

Date Written: December 2017


Crude oil production in the United States increased by nearly 80 percent between 2008 and 2016, mostly in areas that were far from existing refining and pipeline infrastructure. The production increase led to substantial discounts for oil producers to reflect the high cost of alternative transportation methods. I show how the expansion of the crude oil pipeline network reduced oil price differentials, which fell from a mean state-level difference of $10 per barrel in 2011 to about $1 per barrel in 2016. Using data for the Permian Basin, I estimate that the elimination of pipeline constraints increased local prices by between $6 and $11 per barrel. Slightly less than 90 percent of this gain for oil producers was a transfer from existing oil refiners and shippers. Refiners did not pass on these higher costs to consumers in the form of higher gasoline prices.

Suggested Citation

McRae, Shaun, Crude Oil Price Differentials and Pipeline Infrastructure (December 2017). NBER Working Paper No. w24170, Available at SSRN:

Shaun McRae (Contact Author)

ITAM, Centro de Investigación Económica ( email )

Camino a Santa Teresa No. 930
Col. Héroes de Padierna
Ciudad de México

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