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.

Research Fellow Nader is a research fellow at KAPSARC. His research interests include development economics, economic modeling, and natural resource economics. He leads… Nader is a research fellow at KAPSARC. His research interests include development economics, economic modeling, and natural resource economics. He leads a project exploring the role of sovereign wealth funds in promoting economic diversification in oil-dependent economies. Nader holds a B.Sc. in operations research, an M.Sc. in applied mathematics and computational science, and an MBA in finance.
Expertise
- Sovereign wealth funds; natural resource economics; economic modeling
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 2021
Toward Fiscal Stability and Sustainable Development: The Role of Sovereign Funds in Saudi Arabia
We develop a Global Oil Trade Model (GOTM) to examine the ability of large crude…
26th July 2020