A Model for the Global Crude Oil Market Using a Multi-Pool MCP Approach

Daniel Huppmann and Franziska Holz

No 869, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper proposes a partial equilibrium model to describe the global crude oil market. Pricing on the global crude oil market is strongly influenced by price indices such as WTI (USA) and Brent (Northwest Europe). Adapting an approach for pool-based electricity markets, the model captures the particularities of these benchmark price indices and their influence on the market of physical oil. This approach is compared to a model with bilateral trade relations as is traditionally used in models of energy markets. With these two model approaches, we compute the equilibrium solutions for several market power scenarios to investigate whether the multi-pool approach may be better suited than the bilateral trade model to describe the crude oil market. The pool-based approach yields, in general, results closer to observed quantities and prices, with the best fit obtained by the scenario of an OPEC oligopoly. We conclude that the price indices indeed are important on the global crude market in determining the prices and flows, and that OPEC effectively exerts market power, but in a non-cooperative way.

Keywords: crude oil; market structure; cartel; pool market; simulation model (search for similar items in EconPapers)
JEL-codes: L13 L71 Q41 (search for similar items in EconPapers)
Pages: 16 p.
Date: 2009
New Economics Papers: this item is included in nep-cmp, nep-com and nep-ene
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.96394.de/dp869.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp869

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().