Chapter 11 - Article Summary Flashcards
Article #1
The article explains the factors affecting crude oil prices, including supply and demand, geopolitical events, and natural disasters. It highlights the role of OPEC in regulating oil production and prices, as well as the concept of “spare capacity” that allows oil producers to adjust output in response to supply disruptions. Key historical examples like the 1973 oil crisis and recent events in the Middle East are used to demonstrate how geopolitical tensions affect oil prices. Additionally, it covers how oil transactions happen through futures and spot markets.
Article #2
This article explains why different types of oil are priced differently, focusing on benchmarks like Brent, West Texas Intermediate (WTI), and Western Canada Select (WCS). The price a producer receives for oil depends on factors like the type of oil, its geographical origin, and transportation costs.
Brent Oil: A global benchmark, Brent oil is a light, sweet crude from the North Sea, and it is priced highly due to its accessibility to coastal ports and ease of transportation by tankers. It is widely traded and can be easily shipped to various global markets.
West Texas Intermediate (WTI): A light oil benchmark from the U.S., WTI is produced in landlocked areas and must be transported to coastal refineries, which adds costs. Due to limited export capabilities (especially due to U.S. export restrictions), WTI generally trades at a discount compared to Brent.
Western Canada Select (WCS): A heavier oil produced in Alberta, WCS is typically priced lower than WTI because it contains bitumen mixed with diluents, and its heavier nature makes it more expensive to refine. Additionally, its remote location and limited market access result in further discounts.
Dilbit: A blend of bitumen and diluents, often used to transport oil from Alberta’s oil sands. Dilbit is heavier than WCS and priced at a discount to it.
The article also discusses how the bitumen netback price, calculated after accounting for transportation and diluent costs, determines producer revenues and royalties. The overall price a region or country can achieve for oil depends significantly on its access to refineries and the quality of the oil.
