Crude Oil, Its Types, Uses, and Impact

How It Affects Everything You Buy

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BY KIMBERLY AMADEO

Updated November 13, 2018

Crude oil is a liquid fuel source located underground. Between 50 and 97 percent is
hydrocarbons. From 6 to 10 percent is nitrogen, oxygen, and sulfur. Less than 1 percent
is metals such as copper, nickel, vanadium and iron, according to OilPrice.com.

It's called a fossil fuel because its origins. It was created when the remains of prehistoric
algae and plankton fell to the bottom of the ocean or a lake. It combined with mud, and
then was covered by layers of sediment. The intense pressure heated the remains over
millions of years. It first becomes a waxy substance called kerogen. It becomes liquid oil
after more pressue and heat. That's what makes it a nonrenewable resource. It would
take millions of years for new oil to be created when this supply is gone.

Types

West Texas Intermediate crude oil is of very high quality because it is light-weight and
has low sulphur content. For these reasons, it is often referred to as “light, sweet” crude
oil. These properties make it excellent for making gasoline. That's why it is the major
benchmark of crude oil in the Americas.

Brent Blend is a combination of crude oil from 15 different oil fields in the North Sea. It is
less “light” and “sweet” than WTI but still excellent for making gasoline. It is refined in
Northwest Europe and is the primary benchmark for crude oils in Europe or Africa. Find
out more about the difference between WTI and Brent Blend.
Shale oil is crude oil that lies between layers of shale rock. The rock must be broken up
to allow access to the layers of oil. New technology has allowed this oil to come to
market at a competitive price. As a result, oil prices dropped.That created a U.S. shale
oil boom and bust in 2014 through 2016.

Uses of Crude Oil

Crude oil is the base for lots of products. These include transportation fuels such as
gasoline, diesel, and jet fuel. They also include fuel oils used for heating and electricity
generation. In 2017, the United States consumed 7.3 billion barrels of crude oil. Of that,
47 percent went to motor gasoline, 20 went to heating oil and diesel fuel, and 8 percent
to jet fuel. When the hydrocarbons burn, they release the heat that formed them. They
also release carbon dioxide.

Crude oil also creates petroleum products, according to the U.S. Energy Information
Administration. When combined with other chemicals, oil is the base for over 6,000
items. Petroleum byproducts makes tar, asphalt, paraffin wax, and lubricating oils. It is
also used in chemicals, such as fertilizer, perfume, insecticides, soap, and vitamin
capsules. It's the base for plastics used in everything from heart valves to plastic
bags, according to the American Petroleum Institute. It's used in carbon fiber in aircraft,
pvc pipes, and cosmetics.

For example, it takes about 16 gallons of crude oil to produce a sofa. Around 40 percent
of textiles contain some petroleum byproduct, according to Kendrick Oil.

Oil Prices

Crude oil prices measure the spot price of various barrels of oil, most common of which
are either West Texas Intermediate or the Brent Blend. The basket price of
the Organization of Petroleum Exporting Countries and the futures price of the New
York Mercantile Exchange are also sometimes quoted.

WTI sells at a $7 per barrel discount to Brent, according to the Energy Information
Administration. The difference is the increased supply of WTI from U.S. shale
 oil producers. Prices for other crude oils in these two continents are often priced as a
differential to Brent, i.e., Brent minus $0.50.

The OPEC basket price is an average of the prices of oil from Algeria, Indonesia,
Nigeria, Saudi Arabia, Dubai, Venezuela and Mexico. OPEC uses the price of this
basket to monitor world oil market conditions. OPEC prices are lower because the oil
from some of the countries has higher sulfur content. That makes it more “sour” and
less useful for making gasoline.

The NYMEX futures price for crude oil is reported in almost every major U.S.
newspaper. It is the value of 1,000 barrels of oil at some agreed-upon time in the future.
The oil is commonly WTI. In this way, the NYMEX gives a forecast of what oil traders
think the WTI spot price will be in the future. But the futures price follows the spot price
pretty closely since the oil traders can’t know about sudden disruptions to the oil supply,
etc.

Impact of Oil on Economy and You

Higher oil prices increase prices of other fuels, such as gasoline, home heating
oil, and natural gas. It's responsible for 55 percent of the price of gasoline. Distribution
and taxes influence the remaining 45 percent. That drives up the cost of electric power
generation, and manufacturing.

According to the EIA, oil prices affect 96 percent of transportation. That creates higher
food prices. It also impacts 43 percent of industrial products, 21 percent of residential
and commercial use, and 3 percent of electric power. As a result, higher oil prices
increase the cost of everything you buy, creating inflation.

The 4 Ways Crude Oil Is Classified

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