About the ProjectSince the oil price shocks of the 1970s, the security of oil supply has been the main concern in academic and policy circles. The goal of this research project is to study the other side of the coin — the security of oil demand from the net-exporters perspective. How do large oil exporters trade off risk and rewards in ensuring security of demand? In the first phase of this research project, a comparative static model of global oil trade is developed to empirically measure the impacts of alternative crude oil market shares across segmented markets; to assess the strategic choice NOCs have in valuing alternative sales market portfolios in the context of the trade-off along the risk-reward frontier; and to compare IOC behavior as a benchmark for NOCs.More specifically, this project will attempt to specify a parsimonious model of regionally segmented global oil trade calibrated to 2012 benchmark data which would allow comparative static exercises to simulate equilibrium impacts of alternative placement of term-contracted crude oil, including impacts on total revenues for crude oil producers. The model focuses on three fundamental variables that determine relative crude oil prices: transport costs, crude oil quality, and refinery flexibilityIn line with KAPSARC’s overall objectives, the intent is to produce policy-relevant insights that help actors in the oil industry understand the consequences of decisions taken by large exporters. The workshop series fits into the overall project by providing a continuing dialogue that raises key issues, provides feedback on current work, and sets future directions. The workshops are an open collaborative forum that enables the discussion of particular themes that feed into identified research questions. Key PointsWhen oil owned and commercially traded by an exporting country is stored in an importing country in exchange for first drawing rights by the host country in times of emergency, that process is known as ‘joint oil stockpiling’. It can thus be classified as both commercial and strategic storage, offering benefits to both parties. The first Middle East (ME)–Northeast Asia (NEA) joint stockpiling deal was concluded in 2006 between Kuwait and South Korea. Since then there have been several similar agreements by which the national oil companies (NOCs) of Saudi Arabia, Kuwait and the UAE have stored crude in in South Korea and Japan. An accord between the UAE and India, concluded in December 2016, is the most recent exampleThe unique character of the joint oil stockpiling agreements between ME exporters and the NEA importers means these can meet two objectives simultaneously:

The perceived energy security needs of net oil-importing countries and their objectives of enhancing their respective strategic petroleum reserves at low cost. This is because the oil-importing country does not purchase crude oil up front, but retains the pre-emptive right to purchase the oil in case of an oil disruption emergency.By obtaining free or cheap storage facilities within close proximity to large consuming countries, ME NOCs can take advantage of the flexibility provided by effectively having short-haul crude on offer to both their term contract clients and to other crude oil refiners that are not term clients. Joint oil stockpiling offers a platform for opportunistic access of Asian spot markets, an important consideration for the ME NOCs in the current low oil price environment.Assuming a crude oil price of around $40/barrel (bbl), 5 percent interest cost of carry and an equal division of the carrying cost savings with the host government, the ME NOC could gain $9 to $18 million a year if it enjoyed 50 percent of the cost savings in storing 15-30 million barrels (MMbbl). The host NEA country saves about $2.00/bbl in carrying costs while retaining the pre-emptive right to buy the stored oil during oil supply emergencies. If 15-30 MMbbl are stored, the NEA country would save an estimated $31.5 million to $63 million per year