Question: In about 200 words carefully explain why the cretion of the Gateway pipline from Alberta to Kitimat BC will raise the price of crude oil for Canadian refineries.
I would think there are three reasons for the increasing in price of crude oil price, two connected with supply and demand relationship, and the third one is the interact – effecting between oil market and other production market.
Firstly, since the large Asian oil market, especially China, act as big buyers on crude oil. Asian countries could support higher price because their huge inner demand of oil. Thus the oil price in Asian countries, including China, is higher than Canada. With the frequently communication between the Asian oil market and Canadian oil market, the big arbitrage would promote the oil price in Canada such that the difference between these two market declines. And the world demand of oil is enormous and increasing – let’s take China as an example. Chinese government has already obtained oil resources through buying from the other Canadian areas[1], but still not enough. Therefore, the total demand of Canadian oil would increase, shift up the price.
Secondly, because of the huge demand, and through math analysis by Canadian Statisticians and Economists, the Northern Gateway Pipeline could “work out an industry gain of some $38-billion on an undiscounted basis”.[2] This net profit could also see from the other companies. A soar demanding in Asian market will make the net profit attractable. But it would reduce the Asian Premium at the same time.
Thirdly, other productions connected with oil would be influenced directly by oil price, such as gasoline. The higher oil price means the higher gasoline price. And then the price of gasoline would influence the price of oil. Then prices of these productions would go up with soar of oil price.
References:
1 Internet resources: John Carruthers: Enbridge Northern Gateway Angst Unfounded:
http://www.huffingtonpost.ca/2012/09/04/john-carruthers-northern-gateway-hearings_n_1855716.html
2 Internet resources: B.C. media mogul proposes $13-billion oil refinery for controversial Enbridge pipeline:
http://www.timescolonist.com/news/media+mogul+proposes+billion+refinery+controversial+Enbridge+pipeline/7106798/story.html#ixzz262rpbXDehttp://www.theprovince.com/news/media+mogul+proposes+billion+refinery+controversial+Enbridge+pipeline/7106798/story.html
3 Internet resources: Northern Gateway Pipeline Could Raise the Price of Gasoline:
http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/northern-gateway-pipeline-could-raise-the-price-of-gasoline/article4522968/
Hi Cathy!
Well information 🙂
My answer was based on the general economic theory that the domestic price increases as the domestic supply decreases because of asian premium. If the pipeline is constructed, Canadian oil producers can have access to Asian premium. Then they want to export more oil to China rather than to sell it to domestic consumers including Canadian refineries. If it happens, domestic oil supply decreases then domestic price goes up. That is why Canadian refineries need to pay more to get enough amount of oil they need than before the pipeline is built. So, I think it will be better if you add that canadian oil producers can have an access to asian premium becasue of the pipeline. But, your answer includes good information such as “arbitrage”. Good Job Cathy 🙂 See you tomorow!
So happy to receive you comments! 🙂
I would think your answer is much more clearly on the supply and demand relationship. I also tried to explain using the supply concept but it’s a little confusing, so I choose the demand later.
Arbitrage I think that’s one of key words for pipeline…Coz’ there is also some projects like transfer gasoline in western of China to the eastern of China. Then the price show some interesting in both two parts…They both raising compared with the original price…And tend to be the same…><