Crude Oil Prices : Predicting Price Differentials Based on Quality

Abstract

Many developing countries are becoming
\n oil exporters, producing crude oils that often differ
\n markedly in quality from those principally traded.
\n Governments must predict the prices of such crudes, to
\n forecast revenue and evaluate the fairness of the price they
\n receive from companies selling on their behalf. Oil
\n companies, and industry consultants, have models for
\n analyzing price differentials with well-known
\n "marker" crudes, but these models have not been
\n widely known, or adapted to account for increasingly
\n important quality characteristics, such as acidity. This
\n note explains a methodology for price analysis, and a new
\n extension for incorporating acidity, which can have a big
\n effect on the price differential.