Decomposing Crude Price Differentials: Domestic Shipping Constraints or the Crude Oil Export Ban?

Abstract

Over the past decade the primary U.S. crude benchmark, WTI, diverged considerably from its foreign counterpart, Brent, sometimes selling at a steep discount. Some studies pointed to the ban on exporting U.S. crude oil production as the main culprit for this divergence. We find that scarce domestic pipeline capacity explains half to three quarters of the deviation of mid-continent crude oil prices from their long-run relationship with Brent crude. We are unable to find evidence that mismatch between domestic refining configurations and domestic crude characteristics contributed significantly to this deviation. This implies that the short-run deleterious effects of the export ban may have been exaggerated.

Keywords

Crude oil prices Crude oil export ban Shale oil Crude oil pipelines Crude-by-rail Congestion pricing Oil refining

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