Crude Oil Price Differentials and Pipeline Infrastructure / Shaun McRae.

By:

McRae, Shaun

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w24170.Publication details: Cambridge, Mass. National Bureau of Economic Research 2017.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Crude oil production in the United States increased by nearly 80 percent between 2008 and 2016, mostly in areas that were far from existing refining and pipeline infrastructure. The production increase led to substantial discounts for oil producers to reflect the high cost of alternative transportation methods. I show how the expansion of the crude oil pipeline network reduced oil price differentials, which fell from a mean state-level difference of $10 per barrel in 2011 to about $1 per barrel in 2016. Using data for the Permian Basin, I estimate that the elimination of pipeline constraints increased local prices by between $6 and $11 per barrel. Slightly less than 90 percent of this gain for oil producers was a transfer from existing oil refiners and shippers. Refiners did not pass on these higher costs to consumers in the form of higher gasoline prices.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w24170 (Browse shelf(Opens below))	Not For Loan

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December 2017.

Crude oil production in the United States increased by nearly 80 percent between 2008 and 2016, mostly in areas that were far from existing refining and pipeline infrastructure. The production increase led to substantial discounts for oil producers to reflect the high cost of alternative transportation methods. I show how the expansion of the crude oil pipeline network reduced oil price differentials, which fell from a mean state-level difference of $10 per barrel in 2011 to about $1 per barrel in 2016. Using data for the Permian Basin, I estimate that the elimination of pipeline constraints increased local prices by between $6 and $11 per barrel. Slightly less than 90 percent of this gain for oil producers was a transfer from existing oil refiners and shippers. Refiners did not pass on these higher costs to consumers in the form of higher gasoline prices.