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Dynamics of the Heavy-Light Spread in the N. …
Dynamics of the Heavy-Light Spread in the N. American Oil MarketRomain H. Lacombe and John E. ParsonsMIT energy and Environmental Policy Workshop6-7 December 20072 The Issue North American crude oil marketszLight sweet crude: global light marketzHeavy sour crude: Mexican and Venezuelan oilzNew entrant: heavy products from Canadian oil sands Question: how do heavy and light crude prices relate?zIs there a reliable long run equilibrium? Fixed percent spreads ? Fixed differentials? Other?zWhat about the Dynamics of the market? Short-run responses to shocks? Long-run shifts?3 The Data Focus on three key marker crudes: WTI, LLB and MayazWest Texas Intermediate Blend global light crude marketzLloydminster Blend Canadian heavy crude market (benchmark for Diluted Bitumen from the Athabasca oil sands)zMaya Blend Central and South Am. heavy crude market Data: weekly prices for the 1998 - 2007zWTI: NYMEX front month contract for delivery at Cushing, OKzLLB: spot contract for delivery at Hardisty, : sold CIF to USGC based on Pemex marked price4 Historical Evolution of Prices0204060801001998w12 000 w12002w12004w12 006 w12008w1Ti me (wee kly )WTI 1st Month NYMEXMaya BlendLloydminster Blend 1998/01:zWTI: : : 2007/11:zWTI: : : rise in pricesVolatility periods:zKatrinazIrakz9/115 Absolute spreads : WTI-Maya and WTI-LLB0102030401998w12 000 w12002w12004w12 006 w12008w1Ti me (wee kly )WTI-LLB DifferentialFitted valuesWTI-Maya Differ
Dynamics of the Heavy-Light Spread in the N. American Oil Market Romain H. Lacombe and John E. Parsons MIT Energy and Environmental Policy Workshop
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