American Crude Oil Research Articles

Network connectedness between China's crude oil futures and sector stock indices

The financialization and international influence of China's crude oil market are increasing with the listing of China's crude oil futures (INE). In this context, we use the time-frequency connectedness network model to analyse the dynamic spillover effect between Chinese crude oil futures and sector stock indices, and compare it with American crude oil futures (WTI), where the study period includes the COVID-19, the European energy crisis, the Russia-Ukraine conflict and its like. The empirical results demonstrate that the total spillover effect of the crude oil and stock markets is mainly generated by high frequency (1–5 days). Extreme events in crude oil markets such as the Saudi Arabia oil field attack and the negative WTI price led to significant changes in the connectedness network of the system, increasing spillover risk and reducing system stability, but it recovers quickly. Moreover, the heterogeneity of spillover effect from crude oil futures to sector stock indices exists with energy industry and crude oil market the strongest, and meanwhile the spillover effects between crude oil and sector stock indices are smaller than those among sector stock indices in general. Further, China's sector stocks are more closely related to INE (crude oil futures listed on Shanghai International Energy Exchange) than WTI. Specifically, the spillover effect between WTI and INE is asymmetric, that is, the spillover effect from WTI to INE is significantly stronger than from INE to WTI. Finally, Dynamic portfolio weights indicate that assets with low connectedness are beneficial for balancing risk and return. These new findings suggest some useful implications: Regulators should pay close attention to cross-market risk and abnormal vibration of INE, and stock investors in China had better not regard crude oil futures as a hedging market.

Does COVID-19 pandemic event alter the dependence structure breaks between crude oil and stock markets in Europe and America

This article attempts to investigate the influence of novel coronavirus (COVID-19) pandemic on the dependence structure break between crude oil and stock markets in Europe and America using ARMA-GARCH and R-vine copula methods. The empirical results demonstrate that international crude oil and European (American) stock markets have significant asymmetric and symmetric dependence structure, rapid outbreak of COVID-19 pandemic triggers their dependence structure break. The results of Kendall correlation confirms that COVID-19 pandemic amplifies the dependence risks between European Brent crude oil and France (German and Spain) stock markets and reduces the dependence risk between Brent crude oil and UK (Italy) stock markets after February 20, 2020. The COVID-19 pandemic may amplify the dependence risk between West Texas Intermediate (WTI) crude oil and Canada stock markets after March 23, 2020, it first quickly reduces the dependence risks between WTI crude oil and US (Brazil and Mexico) stock markets after March 23, 2020 and then enlarges their dependence risks after June 30, 2020. European and American crude oil and stock markets have induced different ranges of their dependence risks in different time scales and their dependence structure breaks have good robustness.

Global sourcing in oil markets

This paper develops a multi-country general equilibrium model that incorporates crude oil global sourcing by refineries and refined oil demand by downstream industries that are connected through international trade and input-output linkages. I exploit detailed data on crude oil imports of US refineries, and derive a new procedure that allows for an all-in-one estimation of which suppliers refineries select and how much they buy from each. Using the estimates to evaluate counterfactual policies, I find: (i) A boom in crude oil production of a source changes the relative prices of crude oil across countries modestly which I interpret as the extent to which the behavior of crude oil markets deviates from an integrated global market. (ii) Lifting the ban on U.S. crude oil exports creates notable distributional impact across American crude oil producers and refineries. (iii) Due to the importance of oil trade and consumption, gains from trade are larger compared to the existing benchmarks.

Between stranded assets and green transformation: Fossil-fuel-producing developing countries towards 2055

Climate-related asset stranding refers to the depreciation of assets – such as resource reserves, infrastructure, or industries – resulting from the unanticipated changes, such as the tightening of climate policies. Although developing countries – especially fossil-fuel exporters – may be most concerned by this issue, its analysis in development (economics) has so far been limited. We aim at enhancing the understanding of stranded assets by investigating its relevance in the resource sectors of three case study regions –the Middle East, China, and Latin America. For this, we analyse the regional dimensions of four interdisciplinary global energy scenarios. Specifically, we extract results from a numerical energy model (energy production, energy consumption, electricity generation) for the three regions and introduce a novel index for stranded assets. The index identifies which fossil fuel sector in each region is most prone to asset stranding and should receive the most attention from national and international policymakers. We find that considerable uncertainty exists for the Chinese coal sector as well as the Middle Eastern and Latin American crude oil sectors. We finally put our results into perspective by discussing aspects that are closely related to stranded assets for resource-rich economies such as the uncertainty in global energy and climate policy, the resource curse and diversification, economic resilience, and unequal burden-sharing of climate policy efforts between industrialised economies and latecomers. We conclude that China is more likely to engage in a green transformation than the Latin Americas or, still less, the Middle East.

Are crude oil markets cointegrated? Testing the co-movement of weekly crude oil spot prices

The emergence of large, persistent price differentials between land-locked North American crude oils and crude oils with access to tidewater in 2011 has cast doubt on the “one great pool” hypothesis first proposed by Adelman (1984). This article reevaluates the “one great pool” hypothesis by analyzing the co-movement of weekly crude oil spot prices from different geographic regions for the period from May 2, 2008 to June 8, 2018 using a cointegration approach that allows for endogenously determined structural breaks. The results presented in this article indicate crude oil prices, for similar and different quality crude oils, are cointegrated with a structural break, suggesting world oil markets are still integrated. Estimated structural break dates range from the July 30, 2010 to November 13, 2015, with structural breaks between land-locked North American crude oils and tidewater crude oils occurring between July 2010 and August 2011. These break dates are consistent with the beginning of the unconventional crude oil production boom in North America and propose that this significant event may have changed the long-run relationship between land-locked North American crude oils and tidewater crude oils.

Is the Permian Barreling Toward a Breaking Point?

The next year could spell trouble for operators producing oil in west Texas and southeastern New Mexico. The Permian Basin currently has more crude than it can handle, and production there continues to grow at a steady rate month-over-month after surpassing 3 million B/D earlier this year, according to data from the US Energy Information Administration. Pipeline takeaway capacity isn’t sufficient and won’t be until the second half of 2019. There aren’t nearly enough trucks or truck drivers to make up the difference, and any meaningful expansion of crude-by-rail transport is restricted by infrastructure and business-related constraints. Both options are already competing with movement of equipment and supplies such as sand and water, demand of which has also grown—along with their costs—to support the continued production growth. Many operators in the basin struggled to generate positive cash flow even before the bottlenecks became an issue. Now, the price of the crude they’re producing is trading at a big discount vs. spot prices in Houston, near the Gulf Coast refining and export center; and Cushing, Oklahoma, the crude trading hub from which the West Texas Intermediate (WTI) price is derived. The spread between Midland crude and WTI grew to double digits in May, spiking from roughly $1 a couple months earlier. If WTI prices were closer to where they were a year ago, the impact of the spread immediately “would have been significant for almost every operator,” noted R.T. Dukes, Wood Mackenzie US Lower 48 upstream research director. Fortunately for Permian operators, WTI prices have been much higher than the range of prices for which they budgeted coming into the year, minimizing the impact of the spread thus far. But WTI prices aren’t guaranteed to remain that high, and differentials could grow—just look at the Western Canada Select heavy crude price, which has traded at up to a $30/bbl discount to WTI this year due in large part to transportation constraints. The spread forced operators such as Cenovus, Husky Energy, and Canadian Natural Resources to slow their oil sands production during the first quarter. Permian operators are similarly being forced to examine whether continued growth over the next year is sustainable or even worthwhile. Their exposure to Midland spot prices varies, ranging anywhere from less than 5% to 50–60% of Permian production, said John Coleman, Wood Mackenzie senior analyst, North American crude oil markets. Most operators are in the 20–30% range, meaning there already has been a modest hit to cash flow, he said. Consultancy Rystad Energy believes the Midland vs. Cushing spread will “stay very much depressed” into mid-2019 and “won’t be surprised” if it moves into the low $20s/bbl, said Artem Abramov, Rystad vice president, shale analysis. “Everything points to the situation getting worse and worse going forward.”

Multimodal Transportation Flows in Energy Networks with an Application to Crude Oil Markets

Network models of energy markets have been beneficial for analyses and decision-making to tackle challenges related to the production, distribution and consumption of energy in its various forms. Despite the growing awareness of environmental and safety impacts of fuel transfer, such as emissions, spills and other harmful effects, existing energy models for various types of networks are yet to fully capture modal distinctions which are relevant to providing pathways to limiting these impacts. To address this deficit in detailed multimodal analyses, we have built on recent work to develop a partial-equilibrium model that incorporates the representation of multimodal fuel transfer within energy networks. In a novel application to the North American crude oil market, we also demonstrate that our model is a useful tool for exploring avenues for reducing the risks of light and heavy crude oil transportation across this region. The results we obtain indicate that a combined strategy of rail loading restrictions, pipeline deployments and a discontinuation of the oil export ban is most effective in reducing the transportation of crude oil by rail and thereby mitigating the associated risks.

Determination of Asphaltene Critical Nanoaggregate Concentration Region Using Ultrasound Velocity Measurements

Asphaltenes constitute the heaviest, most polar and aromatic fraction of petroleum crucial to the formation of highly-stable water-in-crude oil emulsions. The latter occur during crude oil production as well as spills and cause difficulties to efficient remediation practice. It is thought that in nanoaggregate form, asphaltenes create elastic layers around water droplets enhancing stability of the emulsion matrix. Ultrasonic characterisation is a high-resolution non-invasive tool in colloidal analysis shown to successfully identify asphaltene nanoaggregation in toluene. The high sensitivity of acoustic velocity to molecular rearrangements and ease in implementation renders it an attractive method to study asphaltene phase properties. Currently, aggregation is thought to correspond to an intersection of two concentration-ultrasonic velocity regressions. Our measurements indicate a variation in the proximity of nanoaggregation which is not accounted for by present models. We attribute this uncertainty to physico-chemical heterogeneity of the asphaltene fraction driven by variation in molecular size and propose a critical nanoaggregation region. We treated asphaltenes from North and South American crude oils with ruthenium ion catalysed oxidation to characterize their n-alkyl appendages attached to aromatic cores. Principal component analysis was performed to investigate the coupling between asphaltene structures and velocity measurements and their impact on aggregation.

Volatility in electricity derivative markets: The Samuelson effect revisited

This article proposes an empirical study of the Samuelson effect in electricity markets. Our motivations are twofold. First, although the literature largely assesses the decreasing pattern in the volatilities along the price curve in commodity markets, it has not extensively tested the presence of such a dynamic feature in electricity prices. Second, the analysis of a non-storable commodity enriches the literature on the behavior of commodity prices. Indeed, it has been sometimes asserted that the Samuelson effect results from the presence of inventories. We examine the four most important electricity futures markets worldwide for the period from 2008 to 2014: the German, Nordic, Australian, and US markets. We also use the American crude oil market as a benchmark for a storable commodity negotiated on a mature futures market. Our analysis has two steps: i) in addition to the traditional tests, we propose and test a new empirical implication of the Samuelson effect: price shocks should spread from the physical market to the paper market, and not the reverse; ii) based on the concept of “indirect storability”, we investigate the link between the Samuelson effect and the storability of the commodity. We find evidence of a Samuelson effect in all of the electricity markets and show that storage is not a necessary condition for such an effect to appear. These results should be taken into account for the understanding of the dynamic behavior of commodity prices, for the valuation of electricity assets, and for hedging operations.

Mitigating Environmental and Public-Safety Risks of United States Crude-by-Rail Transport

We present a medium-term market equilibrium model of the North American crude oil sector via which we develop a scenario analysis to investigate strategies to mitigate the environmental and public-safety risks from crude-by-rail transportation across the United States. The model captures crude oil movements across rail-roads, pipelines and waterways, while distinguishing between light and heavy crude qualities. We find that restricting rail loads or increasing pipeline capacity from areas driving production will significantly reduce rail movements. However, lifting the United States crude oil export ban in isolation will only increase rail transportation volumes. We show that an integrated policy of targeted rail caps, pipeline investments and lifting the export ban sustainably addresses medium-term crude-by-rail risks in the United States.

Bitumen Prices and Structural Changes in North American Crude Oil Markets

In an earlier report, changes in bitumen prices at Hardesty, Alberta, Canada, were modeled as the responses to changes in monthly prices of Hardesty light/medium crude oil for the period 2000–2006 with a simple error correction econometric model. This note re-examines that price relationship for the period 2009–2014. Over the period 2006–2014, there was also rapid growth in North American light oil production from low-permeability carbonate, sandstone, and shale reservoirs. During that period, Canadian raw bitumen production grew by more than 12% per year and there was significant geographical diversification in its markets. Results of the statistical analysis showed that the change in the dynamic relationships between bitumen prices and Hardesty light oil prices probably reflected, in part, the maturation of bitumen markets and closer integration with North American light oil markets. The analysis also examines the dynamic relationships between bitumen prices and West Texas Intermediate and Brent international benchmark crude oil prices. Ideally, if bitumen prices are found to be closely related to a widely traded benchmark crude oil, the benchmark crude oil price forecasts could be used as a basis for predicting bitumen prices. However, neither of international benchmark crude oils tested had high explanatory power.

1. Toxicity of Fresh and Weathered Sunken Heavy Fuel Oil to the Early Life Stages of Rainbow Trout (Oncorhynchus mykiss) in Simulated Spawning Shoal Environments

Because the density of heavy fuel oil (HFO) is equal to or greater than that of freshwater, it behaves differently than lighter oils that float. Heavy fuel oil can sink to the bottom or be suspended in the water column and affect aquatic organisms that are not typically exposed to floating oils. Most research on oil spill technologies thus far examines the direct exposure of rainbow trout to floating or submerged oil droplets; there is little knowledge of the impacts of non‐floating heavy fuel oil on the water column and benthic organisms exposed to oil that accumulates in sediments. The toxicity of sunken HFO 6303 and Medium South American (MESA; reference) crude oil, as well as the effects of weathering on toxicity to embryos of rainbow trout were assessed using increasing concentrations of oil on gravel substrate in continuous‐flow desorption columns. Toxicity was assessed by measurement of the rates of mortality and growth, and the prevalence of blue sac disease, a hallmark sign of oil toxicity. The lower median lethal concentration for HFO compared to MESA indicated that HFO is more toxic. Interestingly, the LC50 values for fresh and weathered for both oils were similar, indicating little change in toxicity when the oil weathers naturally. Repetition of this experiment and analysis of PAH content in each treatment will provide more insight into the environmental and health risks associated with sunken heavy fuel oil.

Identification of Calcium Naphthenate Deposition in South American Oil Fields

Precipitation of calcium naphthenate soaps from acidic crude oils poses significant operational challenges. Calcium naphthenate deposition in oil fields results from the interaction of a family of special polycyclic tetracarboxylic acids, known as ARN acids, with divalent metal ions (Ca2+) present in produced water. Calcium naphthenate scaling is being increasingly reported from oil fields in South America. We report detailed analyses of three field deposits from various crude-oil-producing fields in South America. All the field deposits were confirmed as calcium naphthenate scale via advanced analytical probes such as mass spectrometry and high-temperature gas chromatography. These field deposits consisted predominantly of polycyclic tetracarboxylic ARN acids. Presence of ARN acids was also validated in South American crude oils. Furthermore, low molecular weight ARN acids with a C70–C72 hydrocarbon skeleton were identified in all the calcium naphthenate field deposits as well as in the crude oil samples. Another interesting observation reported is the striking resemblance in the molecular signature of ARN acids from South America to those from West Africa.

Lithium Cationization for Petroleum Analysis by Positive Ion Electrospray Ionization Fourier Transform Ion Cyclotron Resonance Mass Spectrometry

Lithium cationization can significantly extend the compositional range for analysis of petroleum components by positive electrospray ionization [(+) ESI], by accessing species that lack a basic nitrogen atom and, hence, are not seen by conventional (+) ESI that relies on protonation as the primary ionization mechanism. Here, various solvent compositions and lithium salts enabled us to optimize ionization by formation of lithium adducts ([M + Li]+), and the results are compared to production of [M + H]+ by conventional (+) ESI with formic acid. Lithium cationization (+) ESI Fourier transform ion cyclotron resonance mass spectrometry (FT-ICR MS) of Athabasca bitumen heavy vacuum gas oil (475–500 °C) and North and South American crude oils demonstrates considerable improvement over protonation for production of ions from compounds belonging to SxOy (SO, SO2, SO3, SO4, S2O, S2O2, etc.) heteroatom classes. Those compounds exhibit much higher affinity for lithium cation than for proton and yield abundant [M + Li]+ ions. Li+ cationization thus opens a pathway for detection and characterization of SxOy class compounds that preferentially concentrate at the interface in oil/water emulsions.

Samuelson Hypothesis and Electricity Derivative Markets

This article proposes an empirical study of the Samuelson effect in electricity markets. Our motivations are twofold. First, although the literature largely assesses the decreasing pattern in the volatilities along the price curve in commodity markets, it has not extensively tested the presence of such a dynamic feature in electricity prices. Second, the analysis of a non-storable commodity enriches the literature on the behavior of commodity prices. Indeed, it has been sometimes asserted that the Samuelson effect results from the presence of inventories. We examine the four most important electricity futures markets worldwide for the period from 2008 to 2014: the German, Nordic, Australian, and US markets. We also use the American crude oil market as a benchmark for a storable commodity negotiated on a mature futures market. Our analysis has two steps: i) in addition to the traditional tests, we propose and test a new empirical implication of the Samuelson effect: price shocks should spread from the physical market to the paper market, and not the reverse; ii) based on the concept of indirect storability, we investigate the link between the Samuelson effect and the storability of the commodity. We find evidence of a Samuelson effect in all of the electricity markets and show that storage is not a necessary condition for such an effect to appear. These results should be taken into account for the understanding of the dynamic behavior of commodity prices, for the valuation of electricity assets, and for hedging operations.

Information Flows in the Term Structure of Commodity Prices

We apply the concepts of conditional entropy, information transfers and directed graphs to investigate empirically the propagation of price fluctuations across a futures term structure. We focus on price relationships for North American crude oil futures because this key market experienced several structural shocks between 2000 and 2014: financialization (starting in 2003), infrastructure limitations (in 2008-2011) and regulatory changes (in 2012-2014). We find large variations over time in the amount of information shared by contracts with different maturities. Although on average short-dated contracts (up to 6 months) emit more information than backdated ones, a dynamic analysis reveals that, after 2012, similar amounts of information flow backward as flow forward along the futures maturity curve. The mutual information share increased substantially starting in 2004 but fell back sharply in 2012-2014. In the crude oil space, our findings point to a possible re-segmentation of the futures market by maturity in 2012-2014. More broadly, they have implications for the Samuelson effect and raise questions about the causes of market segmentation.

Chronic toxicity of heavy fuel oils to fish embryos using multiple exposure scenarios

The chronic toxicity to rainbow trout (Oncorhynchus mykiss) embryos of heavy fuel oil (HFO) 6303, weathered HFO 6303, HFO 7102, and medium South American (MESA) crude oil was assessed by different exposure regimes. These included water accommodated fractions (WAF; water in contact with floating oil), chemically enhanced WAF (CEWAF; oil dispersed with Corexit 9500), and effluent from columns of gravel coated with stranded oil. Heavy fuel oil WAF was nontoxic and did not contain detectable concentrations of hydrocarbons, likely because the high density and viscosity of HFO prevented droplet formation. In contrast, chemically dispersed HFO and effluent from columns of stranded HFO contained measurable concentrations of alkyl polycyclic aromatic hydrocarbons (PAH), coincident with embryo toxicity. These exposure regimes enhanced the surface area of oil in contact with water, facilitating oil-water partitioning of hydrocarbons. Heavy fuel oil was consistently more toxic to fish than crude oil and the rank order of alkyl PAH concentrations in whole oil were sufficient to explain the rank order of toxicity, regardless of exposure method. Thus, the propensity of HFO to sink and strand in spawning shoals creates a long-term risk to developing fish because of the sustained release of PAHs from HFO to interstitial waters. Further, PAH monitoring is key to accurate risk assessment.

Oil and oil dispersant do not cause synergistic toxicity to fish embryos

Atlantic herring (Clupea harengus) embryos were exposed to water accommodated fractions (WAFs; oil dissolved in water) and chemically enhanced water accommodated fractions (CEWAFs; oil dispersed in water with Corexit 9500A) of Medium South American (MESA) crude oil. The CEWAF was approximately 100-fold more toxic than WAF based on nominal loadings of test solutions (% v/v). In contrast, the ratio of WAF and CEWAF toxicity expressed as measured oil concentrations approximated 1.0, indicating that the higher toxicity of CEWAFs was caused by an increase in exposure to hydrocarbons with chemical dispersion. In a second experiment, the chronic toxicity of Corexit 9500A and chemically dispersed heavy fuel oil 7102 (HFO 7102) to rainbow trout (Oncorhynchus mykiss) embryos was compared to chemically dispersed Nujol, a nontoxic mineral oil. Dispersant alone was toxic, but caused different signs of toxicity than HFO 7102. Nujol at a dispersant-to-oil ratio of 1:20 was nontoxic, suggesting that dispersant was sequestered by oil and not present at toxic concentrations. In contrast, the same nominal loadings of dispersed HFO 7102 caused concentration-dependent increases in toxicity. Both experiments suggest that chemically dispersed oil was more toxic to fish embryos than solutions created by mechanical mixing due to the increased exposure of fish to petroleum hydrocarbons and not to changes in hydrocarbon toxicity. The Nujol control discriminated between the toxicity of oil and chemical dispersant and would be a practical addition to programs of dispersant testing.

Geographical provenance of palm oil by fatty acid and volatile compound fingerprinting techniques

Analytical methods are required in addition to administrative controls to verify the geographical origin of vegetable oils such as palm oil in an objective manner. In this study the application of fatty acid and volatile organic compound fingerprinting in combination with chemometrics have been applied to verify the geographical origin of crude palm oil (continental scale). For this purpose 94 crude palm oil samples were collected from South East Asia (55), South America (11) and Africa (28). Partial least squares discriminant analysis (PLS-DA) was used to develop a hierarchical classification model by combining two consecutive binary PLS-DA models. First, a PLS-DA model was built to distinguish South East Asian from non-South East Asian palm oil samples. Then a second model was developed, only for the non-Asian samples, to discriminate African from South American crude palm oil. Models were externally validated by using them to predict the identity of new authentic samples. The fatty acid fingerprinting model revealed three misclassified samples. The volatile compound fingerprinting models showed an 88%, 100% and 100% accuracy for the South East Asian, African and American class, respectively. The verification of the geographical origin of crude palm oil is feasible by fatty acid and volatile compound fingerprinting. Further research is required to further validate the approach and to increase its spatial specificity to country/province scale.

Toxicity Effects of Chemically-Dispersed Crude Oil on Fish

ABSTRACT Studies were conducted to: (1) evaluate the toxicity of polycyclic aromatic hydrocarbons (PAHs), the water accommodated fraction (WAF) and chemically enhanced water accommodated fraction (CEWAF) from Alaska North Slope (ANS), Medium South American (MESA) and Arabian Light (AL) crude oils on life stages of commercially valuable herring and cod; (2) use biomarkers as indicators of exposure and effects; (3) assess environmental, physical, chemical, biological and temporal factors affecting toxicity; and (4) compare data using identical protocols for different oils and dispersants (Corexit 9500 and SPC-1000). Chronic LC50s for Pacific herring embryos were 3 (ANS) and 1.5 (MESA) mg-petroleum-hydrocarbons/L. ANS was 2.5–3 times more toxic than AL to Atlantic herring embryos. The apparent greater toxicity of a medium compared to a light crude might have been due to higher concentration and increased degree of alkyl PAHs with three or more rings, but the difference was not statistically significant. Incr...