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Crude oil prices fudamentals

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Basics of crude oil

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Crude oil prices fudamentals

  1. 1. CRUDE OIL PRICES FUNDAMENTALS AND TECHNICALS<br />Anupam Basu<br />
  2. 2. Introduction<br /><ul><li>What is crude oil?</li></ul>Crude oil is a naturally-occurring substance found in certain rock formations in the earth.<br />It is a dark, sticky liquid classified as a hydrocarbon. This means, it is a compound containing mainly carbon and hydrogen.<br />Crude oil is highly flammable and can be burned to create energy. <br />
  3. 3. History of Oil:-<br />The first commercial oil well drilled in Romania in 1857. <br />The Indian petroleum industry is also one of the oldest in the world, with Oil being struck at Makum near Margherita in Assam in 1867.<br />In 1889 in Digboi in Assam first oil was struck by Burma oil company.<br />At the beginning of the 20th century oil supplied only 4% of the world’s energy but know it has become the most important energy source and supplies about 37% of the world’s energy.<br /> Since the shift from coal to oil, the world has consumed over 875 billion barrels. Another 1,000 billion barrels of proved and probable reserves remains to be recovered.<br />
  4. 4. Components of Oil:-<br />The exact molecular composition varies widely from formation to formation but the proportion of chemical elements vary over fairly narrow limits as follows:<br />Carbon -- 83-87%<br />Hydrogen --10-14%<br />Nitrogen--0.1-2%<br />Oxygen--0.1-1.5%<br />Sulfur--0.5-6%<br />Metals-- &lt;1000ppm<br />
  5. 5. Classification:-<br />The petroleum industry generally classifies crude oil by:-<br />The geographic location it is produced in.<br />Its API gravity.<br />By its sulfur content.<br />1. According, to the geographic location some of the types are Brent crude, WTI (West Texas Intermediate) crude etc. The geographic location is important because it affects transportation costs to the refinery. <br />
  6. 6. 2. API ( American Petroleum Institute) Gravity:-A specific gravity scale developed by the American Petroleum Institute (API) for measuring the relative density of various petroleum liquids, expressed in degrees. It is given by:-<br /> API Gravity = 141.5/ specific gravity – 131.5<br />Eg:- API of water = 10. (Because S.G. of water=1). <br /> API values of some other crude oils are:-<br />Crude from Bombay High 35-38<br />Gulf 25-28<br />Venezuela 15 <br />
  7. 7. 3. According to sulfur content:- Crude oil is referred to as Sweet if it contains relatively little sulfur or Sour if it contains substantial amounts of sulfur.<br /><ul><li>Sweet oil commands a higher price than Sour oil because it has fewer environmental problems and requires less refining to meet sulfur standards.</li></ul>Crude oil may be considered light if it has low density (or high API Gravity) or heavy if it has high density (or low API Gravity). <br /><ul><li>Light crude oil is more desirable than heavy oil since it produces a higher yield of gasoline.</li></li></ul><li>Fundamental factors affecting crude oil prices<br />World oil demand<br />World oil supply<br />Weather conditions<br />GDP<br />Government policy<br />Political Conditions<br />Futures Market<br />
  8. 8. Technical factors affecting Crude oil prices<br />Hedging:- A hedge is a position established in one market in an attempt to offset exposure to price fluctuations. So, we can mitigate the risk of crude oil price fluctuations by hedging it.<br />

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