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The value of a barrel of crude oil is derived from the value of its end products. These are produced after the oil has been run through a refinery.
End products include:
- motor gasoline
- diesel fuel
- heating oil
- a variety of other products
The end products vary based on the geology of the crude oil’s region of origin. This variance can result in price differences.
A barrel may have a discounted value due to characteristics such as:
- sulfur content
- heavy ends
- other components
The price of a barrel of crude oil may differ from the value of its end products.
Day-to-day price fluctuations also occur. This is caused by changes in marketplace supply and demand.
It is important to consider the following information when discussing the price of crude oil in Alberta.
West Texas Intermediate (WTI)
West Texas Intermediate is considered the benchmark price of oil in North America. Its price changes reflect the supply-and-demand balance and transportation constraints for light, sweet oil in North America.
WTI is a light (low-viscosity), sweet (low-sulfur) oil produced in the United States that yields valuable end products. It is relatively easy to refine. These factors mean it will receive a higher price in the marketplace.
Brent is one of the benchmark prices for oil on a global scale. Its price changes reflect supply-and-demand balance and transportation constraints on a global scale. Brent is traded on the:
- Intercontinental Exchange
- New York Mercantile Exchange (NYMEX)
Brent is a light (low-viscosity), sweet (low-sulfur) oil produced in the North Sea off the west coast of Europe. It yields valuable end products and is relatively easy to refine. These factors mean it will receive a higher price in the marketplace.
Western Canadian Select (WCS)
Western Canadian Select is one of the benchmark prices for heavy oil produced in North America. Its price changes reflect supply-and-demand balance and transportation constraints for heavy crude in North America.
WCS is a heavy (high-viscosity), sour (high-sulfur) oil produced from bitumen in Alberta. It yields fewer valuable end products and is more difficult to refine. These factors mean it will receive a lower price in the marketplace.
Producers and refiners trade crude oil through:
- bilateral agreements
- on commodity exchanges such as the NYMEX in New York
The New York Mercantile Exchange WTI contract is for delivery of WTI from a producer to a refiner. It is one of the largest-traded crude oil contracts in the world. This contract represents the delivery of 1,000 barrels of WTI to Cushing, Oklahoma. There, a refiner arranges for additional transportation to their facility for processing.
Transportation and market access
Transportation and market access play an important role in the supply-demand balance and the resulting price of crude oil. This is especially true for oil produced in Alberta. It will typically travel from the place of supply – the field – to the place of demand – the refinery – via pipeline.
Canadian crudes may be discounted at times. This is because the Alberta supply exceeds the province’s consumption and capacity to export to refining centres outside Alberta via pipeline. Buyers and sellers of crude oil may then transport oil by more expensive methods, such as railroads.
A refinery will recover additional transportation costs by reducing what it pays a producer for a barrel of oil.
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