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Closer to One Great Pool? Evidence from Structural Breaks in Oil Price Differentials

Michael Plante () and Grant Strickler

No 1901, Working Papers from Federal Reserve Bank of Dallas

Abstract: We show that the oil market has become closer to ?one great pool,? in the sense that price differentials between crude oils of different qualities have generally become smaller over time. We document, in particular, that many of these quality-related differentials experienced a major structural break in or around 2008, after which there was a marked reduction in their means and, in many cases, volatilities. Several factors explain these shifts, including a growing ability of the global refinery sector to process lower-quality crude oil and the U.S. shale boom, which has unexpectedly boosted the supply of high-quality crude oil. Differentials between crude oils of similar quality in general did not experience breaks in or around 2008, although we do find evidence of breaks at other times. We also show that these structural breaks can affect tests of stationarity for many price differentials.

Keywords: crude oil price differentials; oil; structural breaks; stationarity (search for similar items in EconPapers)
JEL-codes: C22 Q40 (search for similar items in EconPapers)
Date: 2019-02-05
New Economics Papers: this item is included in nep-ene
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DOI: 10.24149/wp1901

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Handle: RePEc:fip:feddwp:1901