Publications: Notes at the Margin

Be Careful What You Wish For (April 28, 2014)


Just as crude flows to the US Gulf Coast from Cushing, Oklahoma, and other US sources are increasing, so is the market power of independent market-oriented refiners on the Gulf. These companies can now pick and choose between producers, telling them "Sure I will buy your crude if you give a sufficient discount." Those who believe in the tooth fairy (meaning those who think refiners are price takers) assume these companies will simply replace crude imports with oil from the US or Canada without negotiating over price. It would be nice if the world worked that way. However, the market is so concentrated that each IMO refiner has likely calculated that it can increase profits by continuing to import some high-priced oil. This week's report provides the details and discusses the implications. 


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