Closer to One Great Pool? Evidence from Structural Breaks in Oil Price Differentials

This article investigates how the size of price differentials between different grades of crude oil have changed over time. The paper shows that these price differentials have generally become smaller. In particular, the paper documents that many of them experienced a major structural break in or around 2008, after which there was a marked reduction in their means and volatilities. A growing ability of the global refinery sector to process lower-quality crude oil and the U.S. shale boom, which has unexpectedly boosted the supply of high-quality crude oil, are two factors consistent with these changes.