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Volatility of bitumen prices and implications for the industry

January 1, 2008

Sustained crude oil price increases have led to increased investment in and production of Canadian bitumen to supplement North American oil supplies. For new projects, the evaluation of profitability is based on a prediction of the future price path of bitumen and ultimately light/medium crude oil. This article examines the relationship between the bitumen and light crude oil prices in the context of a simple error-correction economic-adjustment model. The analysis shows bitumen prices to be significantly more volatile than light crude prices. Also, the dominant effect of an oil price shock on bitumen prices is immediate and is amplified, both in absolute terms and percentage price changes. It is argued that the bitumen industry response to such market risks will likely be a realignment toward vertical integration via new downstream construction, mergers, or on a de facto basis by the establishment of alliances. ?? 2008 International Association for Mathematical Geology.

Publication Year 2008
Title Volatility of bitumen prices and implications for the industry
DOI 10.1007/s11053-008-9078-5
Authors E.D. Attanasi
Publication Type Article
Publication Subtype Journal Article
Series Title Natural Resources Research
Index ID 70032878
Record Source USGS Publications Warehouse