National Energy Board

www.neb-one.gc.ca

Common menu bar

• Français
• Home
• Contact Us
• Help
• Search
• canada.gc.ca

Breadcrumb

Crude Oil and Petroleum Products - Current Market Conditions January-March 2012

• 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 approximately US$93 per barrel in the fourth quarter of 2011, compared to about US$90 per barrel in the third quarter. Oil prices have generally traded in the $80-$100 per barrel range over the second half of the year, with price movements mainly driven by global economic developments.

The future direction of the global oil market remains uncertain. Prices at current or lower levels are possible as the global economy continues to face significant challenges including the European financial crisis, and weak consumer and business confidence. On the other hand, there is also the possibility of higher prices in the current environment of relatively tight global supply and demand. Crude oil and product stocks in the three major OECD markets of the U.S., Japan and Europe are near the bottom of the five-year range as a result of poor non-OPEC supply performance and the loss of Libyan crude. While global markets remain adequately supplied, geopolitical events in major producing regions always have the potential to cause prices to move higher quickly. At its meeting on 14 December, OPEC agreed to increase its production quota to 30 MMb/d from 24.5 MMb/d, which was set three years ago when the world economy was in recession. The agreement is unlikely to have a material impact on oil prices, however, since the new official quota is closely in line with current production.

During January-March, WTI crude prices is expected to average in the range of US$85-$95 per barrel. Supply and demand imbalances at the Cushing, Oklahoma hub, (where West Texas Intermediate crude is priced) continue; however, the discount of WTI against Brent has narrowed to approximately US$10 per barrel (from highs of US$28 in October) with announced plans to provide new pipeline capacity in 2012 from Cushing to the U.S. Gulf Coast refining centre.

Figure 1 - West Texas Intermediate Crude Oil Price

Source: NEB

Petroleum Products

The North American winter heating season is underway. Heating oil, also known as furnace oil, is similar to diesel fuel and 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 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 factors impacting heating oil prices over the next three months are listed below.

Price Pressures

Heating Oil

• Price of Crude Oil (uncertain pressure)
  Futures markets at the end of December have WTI prices trading around US$94 per barrel through to March. Concerns surrounding the impact of the European debt crisis, and persistent weakness in the U.S. economy could serve to limit price increases.
• Inventory Levels (uncertain pressure)
  U.S. distillate inventories are near the five-year average, indicating that markets are well supplied.
• Demand (uncertain pressure)
  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 winter, or an early start to 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.

Primary navigation (left column)

Date Modified:

2012-01-04