Dangerous enterprise

Jan. 17, 2000
I hope Ms. Dannenmaier (OGJ, Jan. 3, 2000, p. 6) was the only reader to think that my article on crude oil relative values (OGJ, Nov. 22, 1999, p. 51) was about predicting or projecting future crude oil relative values.

I hope Ms. Dannenmaier (OGJ, Jan. 3, 2000, p. 6) was the only reader to think that my article on crude oil relative values (OGJ, Nov. 22, 1999, p. 51) was about predicting or projecting future crude oil relative values. That is a path that is certainly fraught with danger-whether one is using gravity and sulfur or product values-and not a path to which my article points. Moreover, anyone who succeeded in that dangerous enterprise would hardly be likely to publish the results.

In fact, the results shown in my article confirm the folly of assuming uniform gravity and sulfur differential values. One can see quite clearly in Table 6 (OGJ, Nov. 22, 1999, p. 54) that the regression-calculated gravity and sulfur coefficients change over time- the gravity coefficients range from $0.08/API° to $0.10/API° and the sulfur coeffficients range from -$0.72/wt % to -$1.26/wt %.

My article concerned not predicting or projecting future relative values but rather estimating retrospectively the relative values of crude oils. Such retrospective estimates are needed in commerical circumstances (e.g., crude transactions, pipeline quality banks, royalty calculations, etc.) that involve crude oil for which there is either no observable market price or reason to believe that the market price is susceptible to manipulation. In such circumstances it is neither dangerous nor folly to use gravity and sulfur differentials.

Karl R. Pavlovic
President
DOXA Inc.
Washington, DC