Crude Oil and Fuel Products
Crude oil is a global commodity, and crude oil prices are determined by global supply and demand. Apart from an allowance for tanker transportation costs and quality differentials, it makes sense to speak of the world price of oil. Alaskans can do nothing to impact this price.
There is no price for Alaska crude oil on the New York Mercantile Exchange (NYMEX) or other commodity exchanges. The spot price of Alaska North Slope (ANS) crude oil is calculated by subtracting a market differential from the price of West Texas Intermediate (WTI) quoted on the NYMEX. Four different assessment services estimate that market differential and report a daily spot price for ANS.
Fuel oil (also often called diesel) is one of several products distilled from crude oil and used for heating fuel or engine fuel. Alaskans use a number of petroleum products, including motor gasoline, diesel fuel #1, diesel fuel #2, aviation gasoline, and jet fuel. Motor gasolines are used in automobiles, small boats, and snowmachines; there are typically three grades of gasoline available (mostly in larger communities in Alaska). Diesel fuel #1 is a kerosene product used for heating fuel. Diesel fuel #2 is a light gas-oil used for home and commercial heating and as a motor fuel. Aviation gasoline and jet fuel are used to fuel aircraft, but a type of jet fuel is also often used for home heating. According to Crowley, one of Alaska’s largest fuel distributors, most of the diesel fuel in more populated areas like Southcentral Alaska and Fairbanks is ultra low sulfur diesel. Most villages in Western Alaska still use low sulfur diesel because they are exempt from the ultra low sulfur diesel (ULSD) requirement until 2011. Low sulfur diesel has 500 ppm of sulfur while ultra low sulfur diesel contains only 15 ppm of sulfur.
Crude Oil Price Forecast
The U.S. Department of Energy’s Energy Information Administration produces long-term price forecasts in its Annual Energy Outlook. The most recent publication was April 2011. In the AEO2011 reference case, the High Oil Price case for 2035 is $200/barrel, $50/barrel in the Low Oil Price case, and $125/barrel in the Reference case (see Figure 1). AEO2011 High Oil Price and Low Oil Price cases have been expanded to incorporate alternative assumptions about liquids supply, economic developments, and liquids demand as key price determinants.
It is important to note that in the past, EIA forecasts have not proven to be overly accurate. This is in part because a large number of factors, some unpredictable, can affect crude oil prices on the world market.
Current Crude Oil Price Trends
The EIA also publishes the Short Term Energy Outlook. According to the June 2011 Outlook, world crude oil prices reached their highest level of this year at the end of April, fell by about 10 percent in May and have changed very little since then. EIA expects oil markets to tighten through 2012, given projected world oil demand growth and slowing growth in supply from countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC). The projected U.S. refiner crude oil average acquisition cost is projected to rise from $104 per barrel in 2011 to $108 per barrel in 2012 (see Figure 2).