Publications: Notes at the Margin

Competition on Markets: Are Lower Prices on Offer? (August 4, 2014)


On July 30, The Wall Street Journal heralded the first crude oil exports from the United States last week. The shipment is happening due to a new Department of Commerce regulatory interpretation that allows crude to be exported after minor processing. The oil being shipped is going to South Korea, part of the Asian region typically served by Middle East and West African oil exporters. A new era in the battle for global crude oil market share has begun. Nigeria recently cut its price differentials to move oil cargos that had nowhere to go due, in part, to the surge in US production. Middle Eastern producers could easily respond to the surge in light sweet oil output and Nigeria’s reduced differentials with their own cuts to differentials. If they do, one could see lower prices for months or even a year or two. The duration of the decline will depend on future economic growth rates and the response of investors and oil companies. In this week's report, we discuss the details of these developments and the implications.


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