We develop a Global Oil Trade Model (GOTM) to examine the ability of large crude oil exporters or importers to influence inter-regional price differentials by allocating their sales or purchases respectively among different crude oil consuming or producing regions. The model is based on the trade-offs among freight costs, qualities of the crude oils traded and the technical configurations of refineries that process the crude oil. Our reference case (based on 2012 data) minimizes the sum of freight costs and the costs of processing sub-optimal grades of crude oil at a refinery. We model a large Middle East exporter allocating its supply regionally as the leader in a Stackelberg game where all other producers and importers are price takers on the competitive fringe. We then examine the ability of a coalition of importers in Asia to make countervailing strategic purchases rather than act as a price taker. We find that large sellers can increase their revenues while diversifying their customer base by allocating volumes to more distant markets if, by doing so, they capture locational rents from more proximate buyers. Large buyers are unable to reduce their costs compared to the competitive market outcome by adopting countervailing purchase strategies but have the potential to disrupt the rent-seeking of large sellers. © 2017 Elsevier B.V.

Fellow
Nader AlKathiri is a fellow in the Energy Macro & Microeconomics program. He currently leads a project exploring how different…
Nader AlKathiri is a fellow in the Energy Macro & Microeconomics program. He currently leads a project exploring how different energy transition pathways impact the economies of developing and developed countries, aiming to enhance our understanding of the challenges and opportunities that lie ahead in achieving net-zero emissions. Nader’s research has been published in several international peer-reviewed journals such as Energy Economics, Resources Policy, and Applied Economics. Nader holds a Ph.D. in Economics from the University of Sussex and an M.Sc. in Applied Mathematics and Computational Sciences from KAUST. He also holds an MBA in Finance from Prince Sultan University and a B.Sc. degree in Operations Research from King Saud University.
Expertise
- Energy Economics; Economic Diversification; Macroeconomics; Development Economics; Energy Transition
Publications See all Nader AlKathiri’s publications
The impact of fiscal policy on non-oil GDP in Saudi Arabia
We develop a Global Oil Trade Model (GOTM) to examine the ability of large crude…
9th September 2022
Labour Productivity Growth and Convergence in Manufacturing: A Nonparametric Production Frontier Approach
We develop a Global Oil Trade Model (GOTM) to examine the ability of large crude…
1st September 2022