Impact of Changes in the Global Environment on Price Differentials between the US Crude Oil Spot Markets for the Periods Before and After 2008–9

In this paper, we use threshold cointegration to examine price differentials between crude oil spot markets in the US for the periods before (2000–2007) and after (2010–17) the advent of major technological and other changes impacting the oil sector. Threshold bandwidths increase for all market pairs in the post-sample relative to the pre-sample. Increased bandwidths indicate an increase in transaction costs, which implies that larger price differences are necessary for arbitrage to be profitable. Changes in the quantity of oil produced in the area of each spot market partially explain the increase in bandwidths. Quality differences also appear to be important in explaining the differences in the increase in bandwidths between market pairs. Besides bandwidths, the values of the lower and the upper threshold differ by a quarter. Among the market pairs there appears to be no pattern for the lower and upper threshold values.