The world oil market is one great pool: A response

The authors offer a response to Weiner's (1993) criticism of their article in Energy Studies Review (1993). They stand by their original conclusion that the crude oil market is a world market in the relatively short run, and that it is appropriate to define regionalism in terms of geographic antitrust markets. The authors also contend that Weiner incorrectly specified his model by analyzing individual crude oils, which leads to specifying inappropriately narrow geographic markets. It is pointed out that the authors found typical correlation coefficients of over 90% between monthly changes in different market crude prices, and that the appropriate order for their vector autoregression model was four months. These suggest that nearly all the response of one crude oil to movements in price of another occurs rapidly. Further arguments are presented to show that the residual demand curve for oil is very elastic and consequently the oil market is not functionally regionalized. In a regression analysis, 98.7% of the variance in domestic prices is explained by the exogenous variables. A statistically significant and sizeable relationship is also found between domestic and imported crude oil prices, consistent with the authors' previous finding of a homogeneous world oil market. 8 refs., 1 tab