Tuesday, January 13, 2015

The fall of the price of oil is not as bad in Canada, sort of

We always hear the price of oil in US dollars but the reality is that in Canada we work in Canadian dollars and that difference at times matters significantly.

First is a graph of the fall of the West Texas Intermediate price for a barrel of oil at Cushing Okalahoma.in US dollars over the last year.  It has gone from a peak of just over to $105 below $50, a drop of more than 53% in little more than six months.

Now we have the same chart but in Canadian dollars.   The peak was $115 dollars and it has just gone below $60.  This is a drop of only about 48%     It may not seem like a big difference, but it could be enough to keep the oil industry in Alberta doing much better than that of North Dakota.

The difference between $48 per barrel US and $58 per barrel Canadian is very important because it means Canadian oil remains profitable longer than US oil.   The Canadian dollar has declined about 11% against the American dollar since the start of the fall of oil prices.   This fall is the reason the drop in oil prices in Canada has been slower than in the US>  

The best estimate I can find is that it costs around $38 per barrel to produce synthetic crude in Alberta.   As the Canadian dollar has fallen the cost of producing Canadian synthetic crude has fallen in US dollar terms.   It means the tar sands oil will remain worth producing much longer than many US sources.      What I am not accounting for is the long term discount synthetic crude has been selling at.   Tar sands oil tends to sell for close to $4 US a barrel less than the WTI price, but factoring in that, tar sands oil is likely to still be selling for more than the operating costs at a price of $37 US per WTI barrel.

What does disappear are the big fat royalties for the government. and any expansion plans or new tar sands projects.

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