 Price differences among crude oils: The private costs of supply disruptionsEnergy Economics, 2016, vol. 56, issue C, 1-8 Abstract: I quantify the causes for price differences among crude oils that are set by the law of one price with a special emphasis on country risk. For crude oils that are part of the same market, I estimate cointegrating relations, which represent their long-run relation, and error correction models, which represent the rate at which the market eliminates disequilibrium in their prices. Results indicate that positive values of country risk impose a $0.51 price penalty on a barrel of crude oil from an unreliable supplier that increases with the variance in risk and the price of crude oil. These price penalties are the first empirical estimates for how the market values the private costs of oil supply disruptions. Beyond country risk, the price effects of sulfur content, density, distance between supply ports, and OPEC membership confirm the importance of oil supply choke points, OPEC's ability to influence prices, and differences in refinery technology. Because private costs of a supply disruption attach only to nations with a non-zero country risk, previous estimates for the social costs of a supply disruption may be too large. Keywords: Oil prices; Supply disruption; Country risk; Unified market (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:56:y:2016:i:c:p:1-8 DOI: 10.1016/j.eneco.2016.02.005 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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