Oil prices and value

Value

The value of a barrel of crude oil is determined by the value and per cent composition of the end products, which are produced by processing crude oil in a refinery. The end products include:

• gasoline
• jet fuel
• diesel
• heating oil

The percentage breakdown of the product composition produced from a given grade of crude oil varies based on the geology of the crude oil’s region of origin. This variance is reflected in price differences for different grade of crude oil.

A barrel may have a discounted value due to characteristics such as:

• viscosity
• sulfur content
• heavy ends
• geographic location

Price

The price a producer receives for a barrel of oil depends on the type of oil, where it’s produced, and where it is sold. Price fluctuations also occur due to changes in market demand and supply.

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 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

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.

Marketing

Trading

Producers and refiners trade crude oil through:

• bilateral agreements
• brokers
• on commodity exchanges such as the New York Mercantile Exchange (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 to account for the difference in intrinsic value and the cost of transportation to refining centres and markets.