Séminaire programme 4

Guglielmo-Maria Caporale 

(Brunel University)

A Global Oil Market Model with Shipping Costs

Abstract

This paper investigates the role of shipping costs in global crude oil and refined petroleum markets. For this purpose a Global VAR (GVAR) model is estimated jointly for the oil and refined petroleum markets; this includes the Baltic Dirty Tanker Index (BDTI) and the Baltic Clean Tanker Index (BCTI) as measures of the cost of shipping crude oil and refined petroleum commodities, respectively. The results suggest that shocks to the cost of shipping petroleum commodities have a particularly severe negative impact on real economic activity and on refined petroleum consumption in most regions. Shocks to the price of crude oil and refined petroleum instead have inflationary effects, especially in countries that are net importers of those commodities. Further, it appears that the relationship between commodity prices and their respective shipping costs has broken down since the beginning of the Covid-19 pandemic. Specifically, a counterfactual analysis shows that the pandemic moved the prices of crude oil and refined petroleum and their costs of shipping in opposite directions. A second counterfactual scenario concerning the impact of Russian oil sanctions shows that there is a high probability that they increased shipping costs.

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