Crude oil


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Crude oil

  1. 1. DescriptionCrude oil is a yellowish black mineral oil that is extracted fromunder the surface of the earth. This oil is consists of a number ofhydrocarbon compounds as it is formed from the million of yearsold animal and plant remnants. This mixture of hydrocarbonsremains in the liquid form under the normal atmospherictemperature and when distilled, a number of by-products can alsobe extracted. Crude oil is also an important ingredient of somemedicines due to the curing properties it has.Crude oil can be of different types depending upon its origin andits relative weight. Brent crude oil is one of the most importanttypes of crude oil and it is also considered as a benchmark in thecontext of the price fixation of the other types. Brent crude oil is alighter type crude oil possessing API (American PetroleumInstitute) gravity of 38 to 39 units and having medium levels ofsulfur.OverviewOil is the single most important commodity that holds the positionof a key factor in each and every economy of the world. Theworld’s richest nations are at their current positions just becauseof the oil factor. The importance of oil has reached such a level atwhich there is no country in the world, which doesn’t need oil andits by-products, and if somehow it doesn’t have much reserves ofoil to meet their domestic demand, these nations are ready toimport the product at any cost. Many nations have a huge shareof their earnings constituted by oil exports only. Every industryrequires oil to function properly either directly or indirectly as bothcrude oil and its by-products serve as their inputs. The extent of
  2. 2. the commodity’s importance was shown to the world when theworld’s most strong economies were shaken up as the oil pricesshot up in 1973 and 1979 when the gulf countries refused tosupply oil to the countries that were the supporters of Israel in itswar with Egypt and Syria. Crude oil alone bears 60% share tomeet the global energy needs in the current scenario. The reasonfor this high share in the primary energy consumption in the worldis due to the advantages that oil has over the other constituents ofprimary energy such as diverse application, comparatively lesserharm to the environment, easy handling, lower capital costs andabove all higher efficiency.Crude oil reserves on earth are estimated to be more than 1trillion barrels that are mostly found in the Middle East, EasternEurope, Africa and Central America, Middle East being the topreserve holder. It is a clear fact that oil is a limited resource andwould finish off in a maximum of 80 years if the current rate ofconsumption continues. Of these 1 trillion barrels, the worldproduces around 75 million barrels per day. The largest crude oilproducing country is Saudi Arabia followed by Russia and UnitedStates of America. The refining capacity of oil in the world as in2002 was 4166 million tons. The consumption of crude oil in theworld has been rising with the change in time and thetechnological improvements that are accompanying it. Oil isconsumed all over the globe, consumption figures standing at 76million barrels per day and United States of America consumesthe maximum level of oil in the world. The major consumercountries of crude oil along with their consumption figurespertaining to the year 2006 areUnited States of America (20.7 million barrels/day)
  3. 3. China (6.5 million barrels/day)Japan (5.4 million barrels/day)Germany (2.6 million barrels/day)Russia (2.6 million barrels/day)India (2.3 million barrels/day)Canada (2.3 million barrels/day)Brazil (2.2 million barrels/day)South Korea (2.1 million barrels/day)France (2.0 million barrels/day)Mexico (2.0 million barrels/day)Regarding the world trade situation, one important aspect is thepresence of an organization namely OPEC that controls andregulates the exports and imports of most of the countries of theworld. OPEC stands for ‘Organization of Petroleum ExportingCountries’ and the members include all the 11 major crude oilproducing countries and nations that are highly dependent on therevenues from oil and oil products. As a matter of fact, OPECnations have 75% of the world’s total crude oil reserves of 1trillion barrels and control around 40% of the world oil production.OPEC member countries also dominate the world exports ofcrude oil contributing to 55% of the total world exports. The majorcrude oil exporting countries with their exporting figures areSaudi Arabia* (8.73 million barrels per day)
  4. 4. Russia (6.67 million barrels per day)Norway (2.91 million barrels per day)Iran* (2.55 million barrels per day)Venezuela* (2.36 million barrels per day)United Arab Emirates* (2.33 million barrels per day)Kuwait* (2.20 million barrels per day)Nigeria* (2.19 million barrels per day)Mexico (1.80 million barrels per day)Algeria* (1.68 million barrels per day)Iraq* (1.48 million barrels per day)Libya* (1.34 million barrels per day)Kazakhstan (1.06 million barrels per day)Qatar* (1.02 million barrels per day)In the above list, the countries with the * sign are the membercountries of OPEC. The imports of crude oil are generally done bythe countries, which do not have appropriate reserves of oil andare incapable of satisfying the domestic consumption demand.The following is list of the countries with their net import figuresthat are the major importers of crude oil in the worldUnited States of America (12.1 million barrels per day)Japan (5.3 million barrels per day)
  5. 5. China (2.9 million barrels per day)Germany (2.4 million barrels per day)South Korea (2.2 million barrels per day)France (1.9 million barrels per day)Italy (1.7 million barrels per day)Spain (1.6 million barrels per day)India (1.5 million barrels per day)Taiwan (1.0 million barrels per day)HistoryThe history of crude oil dates back to the 3rd or 4th century A.Dwhen the presence of oil was first discovered in China. The oilthat the early Chinese people found was found to have extremelygood medicinal value and was used in the salt form. To extractthat oil from under the earth’s crust, first oil wells of around 243meters were dug up in that region with the help of bamboo polespossessing metal tools at their end. The crude oil was also usedfor the lighting purposes in Ancient Persia.When the city of Baghdad was constructed in the 8th century, thestreets of that city were paved with tar that was easily available inthe natural oil fields in that region. With the time, man discoverednew and diversified uses of oil and hence the discovery of new oilfields became an important requirement. People got to know thevast amount of oil that was hidden under the earth’s surface asmany geographers started predicting it in that time.
  6. 6. All this time oil had a limited use until in 19th century; the processof distillation of kerosene with the help of coal and rock oil wasinvented. Production of oil became commercialized and it startedan era of establishment of oil refineries throughout the world. Oneof the first refineries was established at Baku in Russia and itbecame the world’s largest oil producing refinery. A Russianengineer F.N Semyonov built the first ever modern oil well at thesame place in 1848. Up till 1950s coal had dominance among theprimary energy constituents but crude oil took over the leadershipin a short span of time and has still maintained its reputation.History of crude oil in IndiaIndia was not known to the world in the context of crude oil andit’s by-product production. As late as in 1889, the presence of oilin India was discovered in Digboi in Assam. First crude oil refineryin India was set up in Digboi in1901. Then the exploration andproduction activities were limited to the North Eastern part of thecountry. In 1958 and 1974, two more places for crude oilproduction were identified namely Cambay onshore basin andBombay offshore basin. Initially the major international companieswere given the job to explore and produce oil in the country butafter the shock in oil prices in 1973, whole of the sector wasnationalized.Categories of crude oilThe various types of crude oils are classified according to theirgeographical originations, sulfur level and also the density of the
  7. 7. oils in some cases. For differentiation depending upon the gravityof oils, the American Petroleum Institute (API) provides with abasis to measure it’s density, which is called the API gravity. Thecrude oils are then termed as ‘heavy’ or ‘light’ oil. They are alsodivided as per the sulfur level present in them, as ‘sweet’ or ‘sour’.But, mostly, crude oil is classified on the basis of location only asoils from different locations have different characteristics and theyare also named after the places of origin. The main types of crudeoil according to their geographic locations areNorth Sea Crudes – Considered as bench markAPI gravity – around 38.5 degreesSulfur level - 0.36%Examples - Brent, Forties, Osberg, North Sea Basket, Ekofisk,Statfjord and FlottaWest African Crudes –API gravity - around 35 degreesSulfur level – 0.2%Examples - Bonny Light, Qua Iboe, Brass River, Escravos,Forcados and CabindaPersian Gulf Crudes –API gravity –around 37 degreesSulfur level – 1.08%
  8. 8. Examples - Dubai and Oman assessments, Murban, LowerZakum, Qatar Land, Qatar marine and Banoco Arab MediumUnited States Crudes –API gravity – variable, around 39.6 degreesSulfur level – variable, around 0.24%Examples - West Texas Intermediate (WTI), Mars MOC andMars, P - Plus WTI, WTI Calendar Delta, West Texas Sour(WTS), Light Louisiana Sweet (LLS), Heavy Louisiana Sweet(HLS), Engene Island, Wyoming Sweet, Bonito, Mars, Poseidon,Basrah Light, Alaska North Slope (ANS), Line 63, P-Plus Line 63,Thums, Kern RiverAsia Pacific Crudes –Examples - Tapis, Belinda, Cossack, Jabiru, North West Shelf,MirietcCrude oil producing countriesThe following is the production wise list of major crude oilproducing countries of the worldSaudi Arabia*RussiaUnited StatesIran*Mexico
  9. 9. ChinaNorwayCanadaVenezuela*United Arab Emirates*Kuwait*Nigeria*United KingdomIraq*The countries with * sign are the current members of OPEC.Saudi Arabia is the leading producer of crude oil with theproduction figures of 10.37 million barrels per day. The country isfollowed by Russia with 9.27 barrels and United States with 8.69barrels of production. The total produce of crude oil in the world is75 million barrels per day with the total reserves of crude oilestimated to be 1 trillion tons. These reserves would finish off inaround 80 years with the same rate of consumption. The OPECnations provide around 30 million barrels per day that accounts toapproximately 40% of world production.Production of crude oil in IndiaIndia is not among the major producers of crude oil, as it doesn’thave much oil reserves. That is why it generally depends on
  10. 10. imports of crude oil from other countries. However, the productionof oil and as a result the production of its by-products in India hasincreased in the recent past due to exploration and findings ofnew oil reserves. India currently has an estimated quantity of 5.4billion barrels of oil reserves out of which it produces around 0.8million barrels per day. At this production level, the oil reserves inIndia would last for around 29 years. The major oil reserves of thecountry are situated atMumbai high (Mumbai)Upper Assam (Assam)Cambay (Gujarat)Krishna-Godavari basin (Andhara Pradesh)Cauvery basin (Tamil Nadu)NagalandArunachal Pradesh
  11. 11. The largest crude oil producing oilfield is the Mumbai high fieldthat produces around 260000 barrels per day. Among theseproduction centers, major share of production i.e. 2/3rd share isbagged by the offshore reserves as compared to onshorereserves. The refining capacity of crude oil in India is over 2.1million barrels per day. The refining sector in India is held by bothpublic and private sector, public sector being the dominating one.Indian crude oil marketIndia is one of the non-OPEC countries much dependent on itsimports to fulfill the domestic consumption demand as it has amuch lower level of production. India is a developing country andthe requirement for the oil as a primary energy constituent fromthe industries in the country is at its peak. The country has muchdepended on coal to satisfy its energy needs in the earlier timesbut the use of crude oil and gas is taking over the dominance ofcoal with the change in time. Oil and gas contribute to around45% of the country’s total energy consumption.India has around 5.4 billion barrels of oil reserves with it and thedomestic production has increased in the recent past to reach the0.8 million barrels per day mark. Mumbai high is the largest oil-producing oilfield in India with a production of 2.6 lakh barrels perday. The refining capacity of crude oil in India is estimated ataround 2.1 million barrels per day. Regarding the consumptionpattern of oil in India, it is the 6th largest consumer country in theworld having a consumption of 2.2 million barrels per day. Thisleaves the country with a huge deficit in the demand-supply
  12. 12. scenario and thus 70% of the consumption is met throughimports.India generally imports Oman-Dubai sour grade crude, Brentdated sweet crude and Bonny light crude. The country importsover 1.5 million barrels per day that place it at the 9th positionamong the largest importers of the world. Though the Indianproduction has increased in the recent times, the imports wereraised by 5% making due to the raised Indian demand of around4.2%. The countries from which India imports crude oil areVenezuelaNigeriaSudanIranKuwaitThe Indian oil-refining sector has been regulated by thegovernment historically and is still dominated. A new privatesector has emerged after the loosening of control by thegovernment. The major units pertaining to the oil sector in IndiaareIndian Oil Corporation (Public sector)Oil and Natural Gas Corporation (Public sector)Reliance India Ltd (Private sector)Essar Oil Refinery (Private sector)
  13. 13. Bharat Petroleum Corporation Ltd (Public sector)Hindustan Petroleum Corporation Ltd (Public sector)Manglore Refineries and Petrochemicals Ltd (Public sector)Market Influencing FactorsProduction of the major oil producing countriesVarious climatic or political supply fluctuationsWorld oil demandFluctuations in the value of dollarImports from various world oil organizations like API, DOERefinery fireMajor trading centers of crude oilThe major trading centers of crude oil in the world areNew York Mercantile Exchange (NYMEX)International Petroleum Exchange of London (IPE)Tokyo Commodity Exchange (TOCOM)In India, crude oil is traded at various commodity exchangesnamely Multi Commodity Exchange of India and NationalCommodity and Derivatives Exchange Ltd.