Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27392
Authors: 
Huppmann, Daniel
Holz, Franziska
Year of Publication: 
2009
Series/Report no.: 
DIW Discussion Papers 869
Abstract: 
This paper proposes a partial equilibrium model to describe the global crude oil market. Pricing on the global crude oil market is strongly influenced by price indices such as WTI (USA) and Brent (Northwest Europe). Adapting an approach for pool-based electricity markets, the model captures the particularities of these benchmark price indices and their influence on the market of physical oil. This approach is compared to a model with bilateral trade relations as is traditionally used in models of energy markets. With these two model approaches, we compute the equilibrium solutions for several market power scenarios to investigate whether the multi-pool approach may be better suited than the bilateral trade model to describe the crude oil market. The pool-based approach yields, in general, results closer to observed quantities and prices, with the best fit obtained by the scenario of an OPEC oligopoly. We conclude that the price indices indeed are important on the global crude market in determining the prices and flows, and that OPEC effectively exerts market power, but in a non-cooperative way.
Subjects: 
Crude oil
market structure
cartel
pool market
simulation model
JEL: 
L13
L71
Q41
Document Type: 
Working Paper

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