Price discount, inventories and the distortion of WTI benchmark

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Title:	Price discount, inventories and the distortion of WTI benchmark
Authors:	Kao, Chung-Wei;Wan, Jer-Yuh
Contributors:	淡江大學經濟學系
Keywords:	Oil price;Hasbrouck model;WTI Cushing problems;Rolling estimation
Date:	2012-01
Issue Date:	2012-03-17 10:31:49 (UTC+8)
Publisher:	Amsterdam: Elsevier BV * North-Holland
Abstract:	Applying a rolling estimation to the Hasbrouck information share model, this study investigates the changing status of WTI benchmark over time. Results show the ability of WTI in reflecting market conditions decreases sharply, and WTI's efficiency in processing information has been surpassed by Brent's since the second half of 2004. In the short run, the WTI distortion is related to its price discount problem, but the distortion cannot be indicated by contangos. In the long run, WTI's price discount problem coexists with a positive forward curve and both have harmed the price discovery role of WTI. The rising inventories in Cushing significantly deteriorate WTI's ability in serving as a world benchmark.
Relation:	Energy Economics 34(1), pp.117–124
DOI:	10.1016/j.eneco.2011.03.004
Appears in Collections:	[Graduate Institute & Department of Economics] Journal Article

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