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Price Differential of Canadian Oil

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    I lived on farm for awhile and going to town was one of the perks of life. Some people in the family never went, some thought it was a necessary nuisance. Everything has a different meaning. Nobody is right.
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    Dave Volek Wrote:
    Dockadams Wrote:
    Hey man, I'll tell you, my mom & pop lived in a hick town in southern Illinois for quite a few years back in the 70's. They'd drive to Vincennes Indiana to do monthly shopping, about 65 miles roundtrip, and if something wasn't on the shopping list, they were SOL. When you shop once a month for everything you think you'll need, you don't make mistakes in forgetting items. Even now, when me & wife shop, I write out a list of stuff we need on a full 8.5 x 11 sheet of paper and route the shopping trip, sometimes making as many as 6 stops per trip to economize and make the most out of each trip, no backtracking at all. No extra wear & tear and no wasting of gas running unnecessarily back to where we shopped at. We economize all the time, mainly buying on sale items or buying what is a good deal. No, we don't live in a hick town now, everything is mostly inconveniently located here, and you'd be surprised at how many miles you can rack up in my local area.

    When gas was 25 cents a gallon, we didn't care too much of where and how we drove. Gas around here is about $2.85 a gallon, and it gets expensive when you're careless.

    I grew up on a farm. My Mom and Dad tried to visit the "big town" only once a week. The day was quite full with lots of errands. Nowadays, the farmers drive to the big town just to buy a coffee.

    There is a different mindset. People don't really think about the true cost of getting that coffee--or making four trips a week to buy groceries.

    I'm off the farm, but still living in the big town. I see lots of people making trips to the city for silly reasons. They might consider the cost of gasoline when making the decision, but they don't really consider the full expense of running a vehicle.

    And if you know today's farmers, they don't drive a gas sipping Toyota, the drive big trucks. I must really be different than the total population, we only go to stores when absolutely necessary. Our local stores around here, the parking lots are packed like sardines in a can, most with big SUV's too. I believe when gasoline goes up to nearly $5.00 a gallon, people will piss and moan about the price, and only then will they again reconsider buying a more fuel efficient vehicle. All it would take is an embargo of OPEC.
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    Getting back on topic, this has nothing to do with measurement systems. As Dave pointed out, it is all about the quality if the crude...or in this case a synthetic crude derived from the mining process. They are not equal in quality and therefore not equal in price.

    A barrel of oil is also priced according to location. Obviously a tank load or rail car full of oil at a refinery is worth more than one at the wellhead as the well head price needs to account for the future costs of transportation.

    Regarding quality though, certain crudes can only be processed through certain refineries customized to meet the specifications of the crude. Heavy sour crudes cannot be processed in refineries designed for light sweet (low sulfur) crudes. The sulfur content is important but also other impurities such as nickel and vanadium.

    Finally there is the market factor. Crude sold on the spot market (e.g. WTI at Cushing, Oklahoma) differs in price from that sold in the long term futures market. The market prices will be influenced by demand as well as weather. A hurricane in the Gulf of Mexico can change spot prices in other areas as production offshore is curtailed.

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    Dockadams Wrote:
    And if you know today's farmers, they don't drive a gas sipping Toyota, the drive big trucks. I must really be different than the total population, we only go to stores when absolutely necessary. Our local stores around here, the parking lots are packed like sardines in a can, most with big SUV's too. I believe when gasoline goes up to nearly $5.00 a gallon, people will piss and moan about the price, and only then will they again reconsider buying a more fuel efficient vehicle. All it would take is an embargo of OPEC.

    Today's farmers like to claim that they are poor, eking out a marginal living from the noble occupation of keeping the rest of us fed. That might have been true in the 1950s, but the teenagers of today's farmers are driving better vehicles than I can afford.

    It is amazing at the folly of vehicle expenses. It might take $6 a gallon (or $2 a liter) before people reconsider their driving choice, but even such increases in gasoline are marginal in the total cost of the vehicle. Maintenance, repairs, insurance, and depreciation are the same regardless whether the price of gas is $3 or $5.

    We really believe the only cost to running a vehicle is gasoline.

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    Schmidt Wrote:

    Getting back on topic, this has nothing to do with measurement systems. As Dave pointed out, it is all about the quality if the crude...or in this case a synthetic crude derived from the mining process. They are not equal in quality and therefore not equal in price.

    A barrel of oil is also priced according to location. Obviously a tank load or rail car full of oil at a refinery is worth more than one at the wellhead as the well head price needs to account for the future costs of transportation.

    Regarding quality though, certain crudes can only be processed through certain refineries customized to meet the specifications of the crude. Heavy sour crudes cannot be processed in refineries designed for light sweet (low sulfur) crudes. The sulfur content is important but also other impurities such as nickel and vanadium.

    Finally there is the market factor. Crude sold on the spot market (e.g. WTI at Cushing, Oklahoma) differs in price from that sold in the long term futures market. The market prices will be influenced by demand as well as weather. A hurricane in the Gulf of Mexico can change spot prices in other areas as production offshore is curtailed.

    Thanks for getting back on topic. There's been a lot of talk about the "price differential" in Canada. Both the media and politicians like to use this topic to prove that Canadians are getting a raw deal. And public policy seems to be leading towards another pipeline to fix the problem. But it is not a problem; the reality is that Alberta oil won't command a WTI price--ever!

    The new pipeline from Edmonton to Vancouver will allow more oil to be sold (or perhaps divert oil traffic away from rail), but most likely the price differential will still be the same.

    Here is another case of western democracy not being able to ascertain the situation to make the best decision.