As the number of new COVID-19 cases continues to rise, so does the oil patch’s apprehension that crude oil prices could be poised to take another hit. If that happens, producers would have to review, yet again, their plans for optimizing production as best they can, given their pricing outlook. But producers do not all receive uniform prices reflecting NYMEX WTI for their physical barrels — far from it. Crude quality and proximity to a demand market can make a big difference in the price that the barrels will ultimately sell for. Price reporting agencies (PRAs) such as Argus and Platts track and publish these differentials. But how are those differentials calculated and how do they affect producers? Today, we discuss crude differentials and their impact.
Canadian crude output is rising, requiring new export routes. As traditional pathways face constraints, the U.S. Rockies—especially the Guernsey, WY hub—are emerging as key corridors for moving Canadian heavy crude to downstream markets, including the Gulf Coast.
A couple of weeks ago, we made the case in our blog, Cruel Summer, that there is distinct risk that crude oil prices could face another round of downward pressure if a second wave of COVID-19 again slashes refining demand and throws the supply/demand balance back out of whack. If that were to play out, producers would once more need to reckon their appropriate level of capital expenditures (see Too Soon to Know) and determine which wells to bring online and which wells to keep as inventory. As we discussed in Gimme Some Truth, those decisions will have a significant impact on the shape of our expectations for U.S. crude production.
When crude oil prices plummeted back in April and producers across the country considered whether shutting in production was in their best interest, we noted in our blog, Shut Down, that it’s not a one-size-fits-all answer. Every producer has unique acreage, contracts, and hedges that will affect their decision-making. Key in all of their processes, though, is having an expectation of what price they are likely to receive for their produced volumes. In many cases, producers sell their barrels for delivery up to a month in the future. Earlier this year, we wrote a two-part blog series called Future(s) Games that delved into how such physical crude trades are usually set up. In Part 1, we explained that the pricing mechanism in these contracts contains several pricing elements that normally include the following:
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About the song
"What Difference Does it Make" was written by Morrissey and Johnny Marr, and appears as the third song on side two of The Smiths’ debut album, The Smiths. Released as the third single from the band in January 1984, "What Difference Does It Make" went to #12 on the UK Singles chart. The song was recorded in October 1983 at Pluto Studios in Manchester, England, with John Porter producing. Personnel on the record were: Morrissey (lead vocals), Johnny Marr (guitars), Andy Rourke (bass), and Mike Joyce (drums).
The Smiths is the debut album from the English rock band of the same name. The album was recorded in 1983 at Pluto Studios in Manchester; Strawberry in Stockport, England; and Eden and Matrix in London, with John Porter handling the production duties. It was released in February 1984, and went to #2 on the UK Albums chart, and #150 on the Billboard Top 200 Albums chart in the U.S.
The Smiths were an English rock band formed in Manchester in 1982. Based on the music written by guitarist Johnny Marr and the lyrics of vocalist Morrissey, the songwriting partnership helped create a new sound with guitar, bass, and drums that was a post-punk rejection of the synthesizer dance pop of the early 1980s. The band released four studio albums, one live album, 10 compilation albums, one EP, and 22 singles. Their last two albums, The Queen is Dead and Strangeways, Here We Come, were both certified Gold by the Recording Industry Association of America. The group disbanded in 1987. Morrissey and Marr still record and tour as solo artists. Bassist Rourke and drummer Joyce have worked together and separately with several artists since The Smiths broke up.
