All about Crude Oil

7/29/2019 All about Crude Oil

1/6

AJCON RESEARCH Your Friendly Advisor

1

Crude Oil

There are about 161 different internationally traded crude oils. They vary in terms of characteristics, quality, and market penetration.

Two crude oils which are either traded themselves or whose prices are reflectedin other types of crude oil include West Texas Intermediate and Brent.

Differences in the prices of these various crude oils are related to qualitydifferences, but other factors can also influence the price relationships betweeneach other.

The world Crude Oil prices are decided on the following :

West Texas Intermediate (WTI) Crude Oil

Is of very high quality and is excellent for refining a larger portion of gasoline. MostWTI crude oil gets refined in the Midwest region of the country, with some morerefined within the Gulf Coast region. Although the production of WTI crude oil is onthe decline, it still is the major benchmark of crude oil in the Americas. WTI isgenerally priced at about a $2-per-barrel premium to the OPEC Basket price andabout $1-per-barrel premium to Brent. Its API gravity is 39.6 degrees (making it alight crude oil).


2/6


2

Spot Price (West Texas Intermidiate)

0

10

20

30

40

50

60

70

Oct-04

Dec

-04

Feb-

05

Apr-05

Jun-05

Aug-05

Oct-05

Date

PriceperB

arrel

Series1

Brent

Blend is actually a combination of crude oil from 15 different oil fields in the Brent andNinian systems located in the North Sea. Its API gravity is 38.3 degrees. Brent blend isideal for making gasoline and middle distillates, both of which are consumed in largequantities in Northwest Europe, where Brent blend crude oil is typically refined.

Brent blend, like WTI, production is also on the decline, but it remains the majorbenchmarkfor other crude oils in Europe or Africa. For example, prices for other crudeoils in these two continents are often priced as a differential to Brent, i.e., Brent minus$0.50. Brent blend is generally priced at about a $1-per-barrel premium to the OPECBasket price or about a $1-per-barrel discount to WTI.


3/6


3

OPEC

Organization of Petroleum Exporting Countries (OPEC) members include:Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United

Arab Emirates, andVenezuela.

The Organization of Petroleum Exporting Countries (OPEC) was founded inBaghdad, Iraq, in September 1960, to unify and coordinate members' petroleumpolicies.

OPEC controls almost 40 percent of the world's crude oil. It accounts for about 75 per cent of the world's proven oil reserves. Its exports represent 55 per cent of the oil traded internationally.

OPEC PRICE BAND

Collects price data on a "basket" of crude oils, and uses average prices for these oilstreams to develop an OPEC reference price to monitor world oil market conditions.

At its 136th meeting to review oil markets on June 15, 2005, OPEC decided to changeboth the composition of the basket, and the way that it is calculated. According to OPEC,the changes were made to better reflect the average quality of crude oil in OPEC MemberCountries.Effective June 16, OPEC's reference basket now consists of eleven crude streamsrepresenting the main export crudes of all member countries, weighted according toproduction and exports to the main markets.

The crude oil streams in the basket are:Saharan Blend (Algeria), Minas (Indonesia), Iran Heavy (Islamic Republic of Iran), BasraLight (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), QatarMarine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and BCF 17 (Venezuela).According to OPEC, the API gravity for the new Basket is heavier, at 32.7 compared to34.6 for the previous basket of seven crudes.


4/6


4

Note: API gravity An arbitrary scale expressing the gravity or density of liquidpetroleum products devised jointly by the American Petroleum Institute and theNational Bureau of Standards. The lower the API gravity the heavier the Oil.

1 US barrel = 42 US gallons 1 US barrel = 158.98 litres 1 tonne = 7.33 barrelsNote: barrels per tonne vary from origin to origin


5/6


5

Non OPEC Countries

Characteristics:

Most non-OPEC countries are net oil importers. Of the 204 non-OPEC countriesand non-independent 173 (85 percent) were net oil importers in 2004.

Because most major non-OPEC countries have private oil sectors (Mexico is onenotable exception), their governments generally have very little control overproduction levels.

Companies react to international price expectations, exploring and drilling moreand in higher cost areas when prices are high, and focusing on lower-costproduction when prices are low.

Of the worlds top net oil exporters, OPEC countries are strongly represented. 10of the 14 countriesexporting more than one million barrels per day of total oil(net) in 2004 were OPEC members. Russia, Norway, Mexico, and Kazakhstanare the world's largest non-OPEC net oil exporters. The United States is theworld's largest net oil importer.

Uses of Crude Oil

Burning crude oil itself is of limited use. To extract the maximum value from crude, itfirst needs to be refined into other products. The best-known of these is Gasoline, orPetrol.There are many other products that can be obtained when a barrel of crude oil is refined

these include liquefied petroleum gas (LPG), naphtha, kerosene, gas oil and fuel oil.All of these are fuels.Other useful products which are not fuels can also be manufactured by refining crudeoil, such as lubricants and asphalt (used in paving roads). A range of sub-items likeperfumes and insecticides are also ultimately derived from crude oil.

Source: OPEC


6/6


6

Indian Scenario

India is very much reliant on oil from the Middle East (High Sulphur). The OPEC has identified China & India as their main buyers of oil in Asia forseveral years to come. India is among the top 10 largest oil-consuming countries. The oil reserves of the country (about 5.4 billion barrels) are located primarily in

Mumbai High, Upper Assam, Cambay, Krishna-Godavari and Cauvery basins.

India had a total of2.1 million barrels per day in refining capacity. India faces a large supply deficit, as domestic oil production is unlikely to keep

pace with demand. India's rough production was only 0.8 million barrels per day.

Disclaimer:

This document has been prepared by Ajcon Global Services Ltd and is meant for the recipient for use as intended and not for circulation. This documentshould not be reported or copied or made available to others. The information contained herein is from the public domain or sources believed to bereliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereuponare reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon assuch. Ajcon Global, its directors and employees, will not in any way be responsible for the contents of this report. This is not an offer to sell or asolicitation to buy any securities. The securities discussed in this report may not be suitable for all investors. Investors must make their own investmentdecision based on their own investment objectives, goals and financial position and based on their own analysis.

All about Crude Oil

Documents

Transcript of All about Crude Oil