On the Price Spread of Benchmark Crude Oils: A Spatial Price Equilibrium Model

Max Bennett and Yue Yuan

MPRA Paper from University Library of Munich, Germany

Abstract: Benchmark crude oils exhibited dramatic fluctuations in price spreads in the recent decade, a phenomenon that rarely occurred in earlier decades. This paper develops a rational expectations two-period model of spatial price equilibrium, and departs from standard models by assuming increasing marginal costs of transportation and storage. We econometrically validate our model using a dataset that covers an extended time period. The model allows us to determine the underlying causes of the unique phenomenon of drastically changing crude oil price spreads over the past decade.

Keywords: Crude oil; price spread; spatial price equilibrium (search for similar items in EconPapers)
JEL-codes: G1 Q41 (search for similar items in EconPapers)
Date: 2016-10-18
New Economics Papers: this item is included in nep-ene and nep-ure
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Citations: View citations in EconPapers (2)

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