Keith Schaefer, of Oil and Gas Investments Bulletin
A determined James Stafford of OilPrice.com just busted wide open an oil industry information cartel that has existed for decades.
Most investors look at WTI and Brent prices at Bloomberg or CME Futures, and figure the oil price is in the public domain. You would be about 2% correct, because there are hundreds of different grades of oil, and hubs where it is bought and sold. And they all have different prices.
Since the age of oil began until a few months ago, most real time oil prices were jealously guarded by marketers, who used it to their advantage in the daily multi-billion dollar physical oil trade.
[…]
Stafford’s quest started well over a year ago when he received a phone call from a reporter working for the Wall Street Journal. The journalist wanted help finding a simple piece of information.
He was writing an article about the African oil industry and simply wanted to know the current price for Bonny Light crude oil (the main benchmark price for Nigerian crude).
Now remember, this is a Wall Street Journal writer with access to an incredible network of contacts and research. This was not a casual retail investor sitting at home with pedestrian internet search skills and no industry contacts. You would expect that finding the current price for Africa’s main brand of crude for a Wall Street Journal writer would be a simple internet search or phone call away.
You would be wrong.
I suppose that we should thank the lobby groups the Feds and the provincial governments for the Canadian discount that keeps our oil prices down. I did not realize that the differential worked like it does.
Now I am really pissed at how much we get raped at the pumps.
Why should any private for profit company have to provide pricing info for ‘free’ to the market place. Potentially it could put their companies at risk competitively. I doubt getting the current crude price for the top dozen global players is much of a challenge.
Ultimately, other than for short trades, why would any retail investor need ‘real time’ pricing? If I want ‘investable’ market info or have someone manage my portfolio I have to pay.
None story IMHO.
Does anyone know how that discount on Canadian crude compares to the discount on Bakken crude, back when it all was carried by rail? Seems huge.
While the point being made is informative, it isn’t news. Which is the root problem: modern news is the dumbed down distillation done by ‘journalists’ who both believe that their readership would not understand and loose interest; and who increasingly are more interested in “putting context” (i.e. their own political slant) in what they write. Oilprice.com (and sites like Kate’s) are the the response: places you can go to get behind the headlines and find the source documents.
The other thing that you learn by following Oilprice.com every day (as I have since it was started) is just how complicated and interlinked the business of energy is; Jim Stafford’s real achievement is to make this so clear and put it out where the public can see it. Those who harp about the price at the pump are oblivious to the miracle that has anything at the pump at all; let alone the plentifully and inexpensive energy source that we all take way too much for granted. That the price is so variegated and fluctuates by the second across the globe is evidence of competition and free enterprise at work; not the opposite. I doubt if many of the readers here would want the price of gasoline set by a government board with a dozen or so well-connected Liberals (appointed by a drama coach) supported by millions of dollars of bureaucracy, setting a monthly price that looked more to their master’s voice than anything else.
Oh, but wait, that is what we are getting by stealth, and in spades. Let me predict how this will end: a crisis at the pumps is not the price going up a dime; it is finding the tanks dry. The NEP is back, and this time it is highly likely that at some point people are going to be freezing in the dark.
Help me understand the wild variation in oil prices, then. I am genuinely confused by the massive INCREASES in Middle Eastern Oil (bottom of the page) relative to all others. I can “imagine” multiple reasons for the worldwide variations in price … but I don’t know for sure.
Some time ago I tried to find out where Eastern Canada’s gasoline came from. It took me days reading government and industry links to find out that Ontario and east’s gasoline is refined from North Sea and Algerian sourced oil. Not Alberta. On top of that the 3 I could research… Brent, WTI and the Saudi Basket, were priced differently and the difference being substantial. Added to this was that western oil was trading at a discount on the Chicago stock exchange and it made me wonder. Reading the charts, it seems Canadian oil is well below market average. Thus restricting business, personal and government taxation revenues.
I’m putting this link to prices on my favorite list. If for no other reason that this information just doesn’t exist anywhere else on the internet.
A freeze-frame shot of this chart should be made available to every pipeline opponent in Canada. The price of Canadian crude oil is a direct reflection of the country’s inability to get the product easily to the global marketplace. The entire country is missing out on the taxes on the US$12 to $15 per barrel discount that would otherwise be remitted to the provincial and federal governments.
A classic example of cutting your nose off to spite your face…
canandian crude hampered by limited access to tidewater. cant afford all the greenies at a 20$ discount.
they should be banned from walking on the pavement , taking fueled transport
and to red jeff:
Very very simplistically, something close to Brent is the real world price. There are variations in price depending on quality (heat content and impurities such as sulphur); who is selling from where and how hungry they are; and who is buying from where and how hungry they are. Refineries are designed around specific types of oil and once billions are spent tooling them up they have to search for the right grades to make the sunk capital investment work (a reason why Canadian heavy oil still has a market; US gulf coast refineries made these key decisions long ago and now have to live with their need for our product). In some places these factors lock producers and suppliers into shorter or longer term relationships; in others either or both or those who trade in futures or those who control transportation can be very, very nimble – and predatory. There are a host of other factors, which is why Oilprice.com is so interesting; it is a place where you finally can see them in play; and his daily commentary is clear, concise and worth following if you want to know these things.
The other key is that oil is worth nothing at the wellhead; only at the burner tip (or gas pump) when the ultimate consumer pays for it does it have real value and it has to both get to those consumers and be turned into a salable product. Alberta prices are all discounted for both the cost of transportation and because there is more oil and gas looking to get on the train or in the pipe than the pipes or trains can carry; so the pipelines and buyers can beat the sellers up. The prime reason for this are government policies and political inaction that I should not need to elaborate on. The differential between cost per barrel by pipe (say about CA$4) and tanker train (started at about $14; now somewhat lower) gets eaten by the producers; thus eating into their income, putting otherwise viable well out of production and people out of work, and hitting government in the taxes when actual income and profits fail and crown royalties diminish with reduced production.
Might mention that gasoline, for example is a very fragile product (shelf life of six months) and (surprise, surprise) there are increasingly more regulations and different regulatory requirements placed on most refined products (winter/summer grades, sulphur contents; ethanol mixes; etc) that make it expensive and difficult to trade. So far the system is coasting on its past, but the greenies know what they are doing and a tipping point is coming; then it will all be the industry’s fault… Same with NG distribution and everything else; the frog is being slowly boiled alive…
Because this is such a finely balanced and complicated production and transportation structure, weather events, and not least politics all play big roles. What keeps it all going is supply and demand, and in much of the world the world depends (and I do mean depends – as in would die without it) on oil and oil products. This is just a sketch, but I hope it useful to you.
Absolutely JAB. I worked in chemicals… we sold on a graduated pricing scheme to mining , forestry and civic governance. Guess which division of said industries paid more for EXACTLY the same chemical. Hint? Start’s with “C”. Chemical plants tool up for whatever conditions are necessary to produce.
The most important thing that no one notices is the difference in standard of living between oil/non-oil industries within a nation. A world commodity versus a ‘traditional’ livelihood. That said, low cost energy is to the benefit of all!
JAB, good post. But there is a factor you did not address, and that is that much of what goes on in the “industry” is hidden behind a curtain of secrecy. This secrecy allows for manipulation and gouging, which does happen. when I drive 15-20 kilometers and see a 8-10 cent difference in a liter of gas, it is not market driven, there are other factors at play. I also know from first hand experience (I worked in plastics for about 10 years) that the big players will dictate prices to consumers. Case in point, when an entity was undercutting market prices, the supplier limited the renegades supply until he fell inline price wise.
re oil industry, prices, I read this book about 15 yrs ago:
https://www.goodreads.com/book/show/169354.The_Prize
there was a vid series on pbs at the same time.
very very informative regarding the players, motives, history, future etc
I don’t believe for a second all that oil came from rotted dinosaur guts. there’s just way too much real down deep for that to explain it.
it was a geological process.
today’s skill testing question, if rotted guts results in hydrocarbons in those qtys, when were there dinosaurs on neptune which has a huge atmosphere containing trance amounts of METHANE????
https://www.space.com/18922-neptune-atmosphere.html
hmmm? just more grade school BULLSHYT propagated by the power system boys to keep the masses wallowing in ignorance.
NME666;
Not sure but you seem to be suggesting that a difference in retail price of 8 – 10 cents in a matter of kilometers is based on a standard WTI crude price and thusly price fixing.
It does make a dif whether the market is USA or Canada. My experience in down stream was at wholesale and retail. My observations;
– over supply of gas in western Canada meant exporting refined gas to the USA
– marketing is largely driven by refinery production and finding a home for all that volume
– at wholesale we looked at past sales and tried to forecast where we could sell to. We would break volumes into different industries realizing that some had better margins than others.
– base sales were more predictable on price and volume compared to bid business with unpredictable results and lower margin
– I flirted with a USA operation and soon found out that supply was based on contracts with a minimum/maximum volume draw at specific load racks.
– back in the ’70’s & ’80’s the major oil companies micro managed their outlets to maximize profits. EVen at that they reorganized and have now done away with most controls.
When people talk about market gouging in the oil industry I have to smile. I did not see a lot of this in my career. Comes down to supply/demand. The capital requirements to run this industry are massive. The supply network to supply markets are very intricate.
CT, when I’m in Newmarket and Petro Can (SUNOCO) charges 112/L and I drive down to Hwy 7 and Petro Can is charging 120/L, that can not be justifies by “market demand”, not by supply. An 8 cent difference can’t be justified by local (higher rents), that is gouging, period. And I’v known and talked to enough people to know they play games to maximize profit. In the plastics industry there was an outfit which low-balled their end sales, and the “big oil” company that was their main supplier cut back on supplies until the end user upped their price. I won’t say specifics as that can still cause some people trouble. I certainly understand “marketing” and supply and demand. I also support “reasonable profits”, just don’t bullshit me. The government supports much of this nonsense so they maximize taxes.
Then there is back about 10-15 years the CEO for Exxon (a fat ugly pig) getting a bonus equal to $400,000,000. There is NO way to justify that, and share holders should have sued the bastards
In other words, markets are complicated things, with many moving parts, and nobody has all the information required to make the market run.
the price of a barrel of oil tells you nothing about what the cost of the end product is going to be from the 45 gallons of oil that is produced, and only someone with an agenda will tell you otherwise.
Thanks for the link to this excellent site.
I noticed something different about the price action on the Western Canadian Select price. There is a tremendous oscillation in the price starting around April of this year compared to many other prices. (look at the one year charts) Wonder what set that off?
And the Canadian Crude Index is pretty choppy over the last year too.
TCPL was doing upgrades to its pipelines; capacity was restricted; those without fixed contracts (and even some of those who did) got squeezed. Hard. NG even went negative on some days! This is why pipelines to tidewater and more options for transporting product are so critical (and now critically delayed); if we can’t get it to where customers will buy it, we are all screwed. And don’t think it doesn’t apply to all of us: the resource industries are what pays for unicorn stuff; and all us happy elves in the Northern forests enjoy being warm and toasty all winter on the back of the ability to export to world markets. NME666 might think the prices are high but in reality they are a bargain compared to any alternative; and the industry, particularly at the downstream wholesale/retail level is exactly as CT describes: it is all about min/max volume contracts and moving product on tight margins to make pennies. The price difference he sees are retailers judging both their markets and their dip sticks to keep within their contracts.
A dozen years ago NG was $12 and more. The industry finally was brought to reality by supply. There’s so much of it that it trades in the $3 range. Sure the high price produced the volume.
The world is awash in oil. Think the price is all market driven when you have the likes of OPEC manpulating the supply?
There are a lot of factors at play here including corruption m
now were did I suggest prices were “high”??? Try reading my posts, I question the price variations in a time frame and location frame. You learn to question such thinks when you do market analysis (IE course). I found similar unjustifiable market differences when I was in plastics,ALL OVER NORTH AMERICA. bloody price differences were unbelievable.
Kenji, there have been millions of words written to explain oil price fluctuations, there is really only one word necessary, gouging.
This is fake news. Anyone working in even a peripheral capacity to the energy industry understands the Brent and WTI are just broad indicators. Project cost/benefit analysis digs into the guts of market origin/destination to work out the financials. Every one is different.