This section provides an overview for commodity prices:
Energy prices are one of the key factors in making decisions on energy development and assessing remaining reserves. Prices are determined by supply and demand, which are influenced by such factors as economic activity, seasonal temperatures, availability, and market access. This section discusses oil prices, natural gas prices, and the U.S./Canadian dollar exchange rate.
Oil is priced based on the physical characteristics of the oil, which influence the level of processing effort required to produce refined petroleum products such as gasoline. As there are multiple grades of oil, a standard is needed from which other grades are priced, resulting in a differential that is based on factors such as the quality of the oil and proximity to markets.
North American crude oil prices are based on the price of West Texas Intermediate (WTI) crude oil traded at Cushing, Oklahoma, which is the underlying physical commodity market for the New York Mercantile Exchange (NYMEX) for light crude oil contracts. WTI crude oil has an American Petroleum Institute (API) gravity of 40 degrees and a sulphur content of less than 0.5 per cent. Internationally, oil is typically priced against Brent Blend, which is a blend of light-sweet crude oil from 15 different oil fields in the North Sea. Typical Alberta contracts trading against WTI are Western Canadian Select (WCS) and Canadian Light Sweet at Edmonton.
In comparison to crude oil, natural gas tends to be traded in local or continental markets, although this is changing with the development of liquefied natural gas (LNG) export projects. Henry Hub has traditionally been the primary trading hub for natural gas in North America and is the underlying commodity market for spot and futures prices on the NYMEX. Within Alberta, the Natural Gas Exchange (NGX) provides market participants with a transparent and efficient marketplace for natural gas trading and the AECO-C price from NGX is the reference price.
As physical commodities are traded internationally, prices are influenced by the exchange rate between the currencies of the trading partners. Since the U.S. dollar serves as the underlying currency for commodity markets, the focus is on the U.S./Canadian dollar exchange rate.