Current Market Conditions February-March 2010

• The World Oil Market
• Petroleum Products
• Price Pressures

The World Oil Market

The reference crude oil price, West Texas Intermediate (WTI) at Cushing, Oklahoma, averaged about US$76 per barrel in December and January compared to about US$77 per barrel in October and November. Oil prices have been generally trading in the US$70-$80 per barrel range since mid-October as the global economy appears to have somewhat stabilized.

The future direction of the global oil market remains uncertain. Oil prices could remain in the area of US$75 per barrel over the outlook period as economic growth in Asia and other developing regions is contributing to increased oil demand, and providing some support to prices. Inventories of crude oil and petroleum products in the three major OECD markets are being drawn down with seasonally higher demand, although economic recovery in these areas is modest. Geopolitical events, although not currently a prominent factor in oil markets, always have the potential to move prices higher.

Petroleum Products

The North American winter heating season is well underway. Heating oil, also known as furnace oil, is a similar product to diesel fuel and is used in about 10 per cent of Canadian homes. Sales of heating oil are concentrated in eastern Canada, with Ontario, Quebec and Atlantic Canada accounting for about 95 per cent of total sales. Although Ontario and Quebec account for about two-thirds of Canadian heating oil demand, the Atlantic region is most reliant on heating oil for space heating. In general, the price of heating oil closely tracks changes in the price of crude oil but conditions specific to heating oil markets can also impact prices.

The main heating oil market in the U.S. is along the Atlantic coast. Heating oil inventories in the U.S. can have an impact on prices in Canada. Currently, Atlantic coast heating oil inventories are above the top of the five-year range. With adequate inventories, markets are well supplied and prices are less likely to rise out of step with crude oil prices.

Listed below are the main factors that will have an impact on heating oil prices over the outlook period.

Price Pressures

Heating Oil

• Price of Crude Oil (uncertain pressure on price)
  The global oil market will continue to be driven by evolving economic conditions in the U.S. and around the world. With the economic outlook still uncertain, oil prices could move higher or lower over the outlook period.
• Inventory Levels (downward pressure on price)
  U.S. Northeast distillate inventories are above the top of the five-year range.
• Demand (uncertain pressure on price)
  Heating oil demand is directly linked to weather. A warmer-than-usual winter would reduce demand and could move prices lower. On the other hand, an unusually cold remainder of the winter would increase demand and could force prices higher.

For further crude oil pricing data and information, please see our Helpful Links. The following sections are also available: How Canadian Markets Work, Canadian Industry and FAQs.