Publications: The Petroleum Economics Monthly

This Time Is Not Different (August 2014)


The August 2014 Petroleum Economics Monthly covers two topics: 1) a new view of the deteriorating global oil market, and 2) a further discussion of the relationship between petroleum product prices and crude prices.


Our opening analysis focuses on the weakening global economic situation. Economic problems are widespread. The US economy is being slowed by an absence of growth in wages and consumer income. Europe confronts the specter of deflation and further recession. Circumstances within the putative global economic star, China, are increasingly uncertain. The slowdown portends two or three years of economic growth below projections, perhaps even global economic stagnation. 


The second part of our report examines the relationship between two crude oils. We demonstrate that product price movements in different regional markets exert a strong, perhaps even dominant influence on crude oil prices. We note, for example, that the US Gulf Coast has increased its product exports to Europe and Asia. For this to work, that is, for the arbitrage to be profitable, gasoil prices in the US Gulf must fall below prevailing prices in Europe.


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