Refined light crude oil can be refined into only
a few products. The heavy crude oil holds more
production potential and costs less so it is more
desirable. This is why crude oil is the standard
commodity that is used to set the world oil prices,
not the refined products. The main market that sets
the price for Canadian crude oil is the Chicago,
Illinois area where Canadian, American, and
international oil supplies compete. Edmonton per par
pricing is determined by the price of competing
crude oils in the Chicago market. The other key
market for Canada is West Texas Intermediate (WTI),
and is a major world crude oil that sets the prices
for various grades of oil everywhere. The price of
WTI reflects the supply and demand of North America
and the world.
Crude oil prices vary all over the world due to
transportation costs. Shipping on ocean oil tankers
is the most inexpensive form of long-distance
transportation with pipelines as the second lowest
cost. If the price offered by one buyer is too
low, the seller will go with the higher bid even if
the transportation cost is also higher. The seller
with do this with the hope
that the increase in the bid will offset the costs
to the seller. Pipeline tariffs also are higher
because more energy is required to move the heavy
crude. Price is also affected by the sulphur
content. High-sulphur sour crude sells for less
because more processing is needed than for the sweet
crude. Syncrude sweet crude blend is then more
expensive than the sour crude because the processing
to remove much of the sulphur has already been done.
Political and economic changes in the world
affect the marketing and prices of oil. For example,
when the first major fighting in Iran-Iraq War began
in 1982, crude oil prices sharply increased per
barrel from thirty-five dollars per barrel to almost
forty
dollars per barrel in one year. Oil prices tripled between
January 1999 and September 2000 due to strong world
oil demand, OPEC oil production cutbacks, and other
factors including weather and low oil stock levels.
This was an example of how interconnected the
world’s crude oil market is and the effects of
political decisions.
Energy Information Administration:
http://www.eia.doe.gov/emeu/cabs/chron.html
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