Commodity Prices Methodology

 

Commodity Prices Methodology

ST98

Updated March 2017

Crude Oil Price Forecast

West Texas Intermediate (WTI) Price Forecast

North American crude oil prices are based on the price of WTI crude oil at Cushing, Oklahoma, which is the underlying physical commodity market for the NYMEX for light crude oil contracts. WTI crude oil has an API gravity of 40 degrees and a sulphur content of less than 0.5 per cent. The initial WTI prices are set based on the current and expected short-term (2–3 year) U.S. and global supply/demand balance. Thereafter, prices reflect inflation rates and other factors such as longer-term global and North American supply and demand.

Canadian Light Sweet (CLS) Price Forecast
The forecast for CLS crude oil price at Edmonton, Alberta, is derived from WTI prices at Cushing. Transportation costs from Edmonton to Cushing and the U.S./Canadian dollar exchange rate forecast are used to develop the light sweet crude oil price forecast in Canadian dollars.

Western Canadian Select (WCS) Price Forecast
The Western Canadian Select price forecast is derived from WTI prices at Cushing. Transportation costs from Hardisty, Alberta, to Cushing; the U.S./Canadian dollar exchange rate forecast; and quality differentials (e.g., sulphur content, density) are used to project the WCS price.

The base case scenario represents the most likely price given what is currently known and expected. The high and low price scenarios reflect the underlying uncertainties inherent in the base price forecast.

Natural Gas Price Forecast

The forecast for the short term (2–3 years) is derived from current data on existing and expected economic activity in the natural gas sector as well as continental supply and demand. The longer-term forecast takes into account additional economic factors such as inflation and considers uncertainties surrounding continental supply and demand, government policies, and project completion schedules. Natural gas prices in North America reflect continental supply and demand, with little influence from the global gas market. However, as LNG export terminals in North America start to export larger volumes of North American natural gas, the price dynamic is likely to change.

The AECO-C price is derived from the U.S. Henry Hub market price, taking into account transportation differentials and the U.S./Canadian dollar exchange rate. Similarly, the Alberta Reference Price (ARP) is derived from the AECO-C price, taking into account Alberta pipeline transportation costs.

The base case scenario represents the most likely price given what is currently known and expected. The high and low price scenarios reflect the underlying uncertainties inherent in the base price forecast.