Crude MNTRSHP Projct

CHAPTER 1
HISTORY OF CRUDE OIL
1.1 BACKGROWND
Petroleum (L. petroleum, from Greek petra (rock) or

+Latin: oleum (oil) crude oil is a naturally occurring,
flammable liquid consisting of a complex mixture of
hydrocarbons of various molecular weights and other
liquid organic compounds, that are found in geologic
formations beneath the Earth's surface. Petroleum is
recovered mostly through oil drilling. It is refined and
separated, most easily by boiling point, into a large
number of consumer products, from gasoline and
kerosene to asphalt and chemical reagents used to
make plastics and pharmaceuticals.[2]
The term petroleum was first used in the treatise De

Natura Fossilium, published in 1546 by the German
mineralogist Georg Bauer, also known as Georgius
Agricola. In the 19th Century, the term petroleum was
frequently used to refer to mineral oils produced by
distillation from mined organic solids such as cannel
coal (and later oil shale), and refined oils produced from
them; in the United Kingdom storage (and later
transport) of these oils were regulated by a series of
Petroleum Acts, from the Petroleum Act 1862 c. 66
onward.
The history of crude oil supply has been dominated by
the time and place of discoveries, with enormous results
on the history of the 20th century.
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1.2 THE HISTORY OF CRUDE OIL AND
SUPPLY
Oil has also been dominated by a few individuals,

companies, and nations, with greed, superb intelligence,
and unbelievable stupidity.
The modern oil era began in northwest Pennsylvania in the mid-19th century,
as shallow fields were tapped.
The early days of the oil industry were characterised by boom and bust, as
new discoveries first overwhelmed demand, then lagged behind it. Prices fell
from $10 a barrel in January 1861 to 10¢ a barrel in December 1861, but were
up to $7.25 a barrel again by September 1863, down to $2.40 in 1867.
Fortunes were made and lost in boom towns and stock speculations that
rivalled any in the gold industry.
The innovation that allowed some control over the chaos was the oil pipeline.
Barrels (real barrels, made of oak) were expensive, sometimes worth more
than the oil they contained. They were expensive to transport on wagons, too.
By 1866, pipelines, made of wood at first, had been built to the major
producing fields, transporting oil to railheads where tanker cars could be filled.
After that, there was only one real choice: the oil flowed to the nearest
industrial city for refining, Cleveland, Ohio.
It was the genius of John D. Rockefeller that found a way to take advantage of
this situation, which was merely a matter of simple geography. The oil fields
were scattered in rough country, owned by small-time entrepreneurs, and new
discoveries were unpredictable in location and size. They were, however,
likely to occur in the same region, and they would be connected by pipelines
to the existing rail network, and funneled to Cleveland. After refining, the
kerosene was marketed nation-wide.
Rockefeller reasoned that the way to control the oil industry was within the
transportation and refining section. In particular, refineries were comparatively
2
long-term investments. At the age of 20, Rockefeller had entered business
just as the Civil War began, and made a lot of money supplying the Army with
wheat, salt, and pork.
In 1863 Cleveland was connected with the Pennsylvania oilfields by rail, and
Rockefeller and a partner opened an oil refinery in Cleveland. In 1866 he
bought out his partner, and at the age of 26 owned the largest refinery in the
city. Using the size of his shipments to negotiate low prices for railroad
transport, outcompeting his rivals for price and quality, Rockefeller and his
Standard Oil Company became the largest oil company in North America,
amalgamating and controlling the refining side of the industry. By 1879
Standard Oil controlled 90% of the refining capacity in the United States, and
all the pipelines flowing out of the Pennsylvania oilfields.
In the 1880s, Standard moved into oilfield production too. By 1890, it was
producing or buying over 80% of the oil produced in the United States, and
refining and selling it. Standard was exporting kerosene, too: half of the
kerosene it produced was exported, mainly to Europe, and kerosene was the
fourth-largest American export commodity.
At the end of the century, the Standard Oil Trust controlled the oil industry of
the Americas, while Shell was a major player in much of the rest of the world.
Three major events altered this situation: in 1901 the great Spindletop gusher
brought Texas oil into the picture, eventually bringing Gulf and Texaco into the
big leagues; in 1911 the US Government used anti-trust legislation to break
up the Standard company; and the World War of 1914 to 1918 brought to
everyone's attention the fact that petroleum was now vital to waging and
winning wars.
The scene was set for oil to dominate much economic, political, and military
thinking, and that situation continues today.
3
Petroleum or crude oil , in one form or another, has been used since ancient
times, as mentioned above and is now important across society, including in
economy, politics and technology. The rise in importance was mostly due to
the invention of the internal combustion engine, the rise in commercial
aviation and the increasing use of plastic.
More than 4000 years ago, according to Herodotus and Diodorus Siculus,
asphalt was used in the construction of the walls and towers of Babylon; there
were oil pits near Ardericca (near Babylon), and a pitch spring on
Zacynthus.Great quantities of it were found on the banks of the river Issus,
one of the tributaries of the Euphrates. Ancient Persian tablets indicate the
medicinal and lighting uses of petroleum in the upper levels of their society.
In the 1850s, the process to distill kerosene from petroleum was invented by
Ignacy Łukasiewicz, providing a cheaper alternative to whale oil. The demand
for the petroleum as a fuel for lighting in North America and around the world
quickly grew.The world's first commercial oil well was drilled in Poland in
1853. Oil exploration developed in many parts of the world with the Russian
Empire, particularly the Branobel company in Azerbaijan, taking the lead in
production by the end of the 19th century. Oil exploration in North America
during the early 20th century later led to the U.S. becoming the leading
producer by the mid 1900s. As petroleum production in the U.S. peaked
during the 1960s, however, Saudi Arabia and Russia surpassed the U.S.
Today, about 90% of vehicular fuel needs are met by oil. Petroleum also
makes up 40% of total energy consumption in the United States, but is
responsible for only 2% of electricity generation. Petroleum's worth as a
portable, dense energy source powering the vast majority of vehicles and as
the base of many industrial chemicals makes it one of the world's most
important commodities.
The top three oil producing countries are Saudi Arabia, Russia, and the
United States.About 80% of the world's readily accessible reserves are
located in the Middle East, with 62.5% coming from the Arab 5: Saudi Arabia,
UAE, Iraq, Qatar and Kuwait. A large portion of the world's total oil exists as
4
unconventional sources, such as bitumen in Canada and Venezuela and oil
shale. While significant volumes of oil are extracted from oil sands, particularly
in Canada, logistical and technical hurdles remain, as oil extraction requires
large amounts of heat and water, making its net energy content quite low
relative to conventional crude oil. Thus, Canada's oil sands are not expected
to provide more than a few million barrels per day in the foreseeable future.
CHAPTER 2
5
STUDY OF CRUDE OIL FURTHER
2.DEFINITION OF OIL AND CRUDE OIL

2.1a Definition of oil
A group of liquid hydrocarbons of fossil origins comprising Crude (that

is,unprocessed) oil extracted oil, liquids from natural gas (NGL) and fully or
partly processed productsfrom the refining of Crude oil.
Remark: Functionally similar liquid hydrocarbons and organic chemicals from

vegetal or animalorigins are identified sepThis could be named ‘Fossil Oil’ and
the remark removed.arately under liquid biofuels.
2.1b Crude oil definition:
Definition: A mineral oil of fossil origin extracted from underground reservoirs

and whichcomprises liquid or near‐liquid hydrocarbons and associated
impurities, such as sulphur andmetals.
Explanation: Crude oil exists in the liquid phase under normal surface
temperature and pressureand usually flows to the surface under the pressure
of the reservoir.
Remark: The various crude oils may be classified according to their sulphur
content ('Sweet' or'Sour') and API gravity ('Heavy' or 'Light'). There are no
rigorous specifications for theclassifications but a Heavy crude oil may be
assumed to have an API gravity of less than 20º and a Sweet crude oil may
be assumed to have less than 0.5% sulphur content.
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2.2 COMPOSITION OF CRUDE OIL
In its strictest sense, petroleum includes only crude oil, but in common usage
it includes all liquid, gaseous, and solid (e.g., paraffin) hydrocarbons. Under
surface pressure and temperature conditions, lighter hydrocarbons methane,
ethane, propane and butane occur as gases, while pentane and heavier ones
are in the form of liquids or solids. However, in an underground oil reservoir
the proportions of gas, liquid, and solid depend on subsurface conditions and
on the phase diagram of the petroleum mixture.
An oil well produces predominantly crude oil, with some natural gas dissolved
in it. Because the pressure is lower at the surface than underground, some of
the gas will come out of solution and be recovered (or burned) as associated
gas or solution gas. A gas well produces predominantly natural gas. However,
because the underground temperature and pressure are higher than at the
surface, the gas may contain heavier hydrocarbons such as pentane, hexane,
and heptane in the gaseous state. At surface conditions these will condense
out of the gas to form natural gas condensate, often shortened to condensate.
Condensate resembles petrol in appearance and is similar in composition to
some volatile light crude oils.
The proportion of light hydrocarbons in the petroleum mixture varies greatly

among different oil fields, ranging from as much as 97% by weight in the
lighter oils to as little as 50% in the heavier oils and bitumens.
The hydrocarbons in crude oil are mostly alkanes, cycloalkanes and various
aromatic hydrocarbons while the other organic compounds contain nitrogen,
oxygen and sulfur, and trace amounts of metals such as iron, nickel, copper
and vanadium. The exact molecular composition varies widely from formation
to formation but the proportion of chemical elements vary over fairly narrow
limits as follows:
Composition by weight
Element Percent range
7
Carbon 83 to 87%
Hydrogen 10 to 14%
Nitrogen 0.1 to 2%
Oxygen 0.1 to 1.5%
Sulfur 0.5 to .6%
Metals < 0.1%
Four different types of hydrocarbon molecules appear in crude oil. The

relative percentage of each varies from oil to oil, determining the properties of
each oil.
Composition by weight
Hydrocarbon Average Range
Paraffins 30% 15 to 60%
Naphthenes 49% 30 to 60%
Aromatics 15% 3 to 30%
Asphaltics 6% remainder
Figure 1.1
Most of the world's oils are non-conventional.
Crude oil varies greatly in appearance depending on its composition. It is

usually black or dark brown (although it may be yellowish, reddish, or even
greenish). In the reservoir it is usually found in association with natural gas,
which being lighter forms a gas cap over the petroleum, and saline water
which, being heavier than most forms of crude oil, generally sinks beneath it.
Crude oil may also be found in semi-solid form mixed with sand and water, as
in the Athabasca oil sands in Canada, where it is usually referred to as crude
bitumen. In Canada, bitumen is considered a sticky, black, tar-like form of
crude oil which is so thick and heavy that it must be heated or diluted before it
8
will flow.Venezuela also has large amounts of oil in the Orinoco oil sands,
although the hydrocarbons trapped in them are more fluid than in Canada and
are usually called extra heavy oil. These oil sands resources are called
unconventional oil to distinguish them from oil which can be extracted using
traditional oil well methods. Between them, Canada and Venezuela contain an
estimated 3.6 trillion barrels (570×109 m3) of bitumen and extra-heavy oil,
about twice the volume of the world's reserves of conventional oil.
Petroleum is used mostly, by volume, for producing fuel oil and petrol, both
important "primary energy" sources.84% by volume of the hydrocarbons
present in petroleum is converted into energy-rich fuels (petroleum-based
fuels), including petrol, diesel, jet, heating, and other fuel oils, and liquefied
petroleum gas. The lighter grades of crude oil produce the best yields of these
products, but as the world's reserves of light and medium oil are depleted, oil
refineries are increasingly having to process heavy oil and bitumen, and use
more complex and expensive methods to produce the products required.
Because heavier crude oils have too much carbon and not enough hydrogen,
these processes generally involve removing carbon from or adding hydrogen
to the molecules, and using fluid catalytic cracking to convert the longer, more
complex molecules in the oil to the shorter, simpler ones in the fuels.
Due to its high energy density, easy transportability and relative abundance,
oil has become the world's most important source of energy since the mid-
1950s. Petroleum is also the raw material for many chemical products,
including pharmaceuticals, solvents, fertilizers, pesticides, and plastics; the
16% not used for energy production is converted into these other materials.
Petroleum is found in porous rock formations in the upper strata of some
areas of the Earth's crust. There is also petroleum in oil sands (tar sands).
Known oil reserves are typically estimated at around 190 km3 (1.2 trillion
(short scale) barrels) without oil sands, or 595 km3 (3.74 trillion barrels) with
oil sands. Consumption is currently around 84 million barrels (13.4×106 m3)
per day, or 4.9 km3 per year. Which in turn yields a remaining oil supply of
only about 120 years, if current demand remain static.
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2.3 EMPHERICAL QUATIONS FOR THE THERMAL
PROPERTIES OF CRUDE OIL
Heat of combustion
At a constant volume the heat of combustion of a petroleum product can be

approximated as follows:
Qv = 12,400 − 2,100d2
where Qv is measured in cal/gram and d is the specific gravity at 60 °F

(16 °C).
2.3a Thermal conductivity
The thermal conductivity of petroleum based liquids can be modeled as

follows:
,547
where K is measured in BTU · hr−1ft−2 , t is measured in °F and d is the

specific gravity at 60 °F (16 °C).
2.3b Specific heat
The specific heat of a petroleum oils can be modeled as follows:
where c is measured in BTU/lbm-°F, t is the temperature in Fahrenheit and d

is the specific gravity at 60 °F (16 °C).
In units of kcal/(kg·°C), the formula is:
10
,
where the temperature t is in Celsius and d is the specific gravity at 15 °C.
2.3c Latent heat of vaporization
The latent heat of vaporization can be modeled under atmospheric conditions

as follows:
where L is measured in BTU/lbm, t is measured in °F and d is the specific

gravity at 60 °F (16 °C).
In units of kcal/kg, the formula is:
where the temperature t is in Celsius and d is the specific gravity at 15 °C.
2.3d Formation of crude oil
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Figure 1.2
Structure of vanadium porphyrin compound extracted from petroleum by
Alfred E. Treibs, father of organic geochemistry. Treibs noted the close
structural similarity of this molecule and chlorophyll a.
According to generally accepted theory, petroleum is derived from ancient

biomass. It is a fossil fuel derived from ancient fossilized organic materials.
The theory was initially based on the isolation of molecules from petroleum
that closely resemble known biomolecules.
More specifically, crude oil and natural gas are products of heating of ancient
organic materials (i.e. kerogen) over geological time. Formation of petroleum
occurs from hydrocarbon pyrolysis, in a variety of mostly endothermic
reactions at high temperature and/or pressure. Today's oil formed from the
preserved remains of prehistoric zooplankton and algae, which had settled to
a sea or lake bottom in large quantities under anoxic conditions (the remains
of prehistoric terrestrial plants, on the other hand, tended to form coal). Over
geological time the organic matter mixed with mud, and was buried under
heavy layers of sediment resulting in high levels of heat and pressure
(diagenesis). This process caused the organic matter to change, first into a
waxy material known as kerogen, which is found in various oil shales around
the world, and then with more heat into liquid and gaseous hydrocarbons via a
process known as catagenesis.
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There were certain warm nutrient-rich environments such as the Gulf of
Mexico and the ancient Tethys Sea where the large amounts of organic
material falling to the ocean floor exceeded the rate at which it could
decompose. This resulted in large masses of organic material being buried
under subsequent deposits such as shale formed from mud. This massive
organic deposit later became heated and transformed under pressure into oil.
Geologists often refer to the temperature range in which oil forms as an "oil
window"—below the minimum temperature oil remains trapped in the form of
kerogen, and above the maximum temperature the oil is converted to natural
gas through the process of thermal cracking. Sometimes, oil which is formed
at extreme depths may migrate and become trapped at much shallower
depths than where it was formed. The Athabasca Oil Sands is one example of
this.
2.4 CLASSIFICATION OF CRUDE OIL
There are different types of Crude oil namely:
 LIGHT SWEET CRUDE OIL
Light sweet crude oil is an especially sought-after form of crude oil which can
be used to make products like gasoline, kerosene, and high-quality diesel.
Although many consumers think that most crude oil is essentially the same, in
fact there are a number of classifications for crude oil which are used to divide
the oil by impurities and consistency. Some forms of crude oil are considered
more valuable than others, with light sweet crude typically commanding the
highest prices on the market.
Sweet crude is a form of crude oil which has a sulfur content below .5%.
Typically sweet crude also has lower levels of other impurities, and the name
is a reference to the flavor; sweet crude has a faintly sweet taste, for those
willing to give it a try. (Although it should be noted that actual ingestion of
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sweet crude oil is not advised.) The lower levels of impurities in sweet crude
oil make it easier to process, because the resulting products do not need to
be filtered as extensively. In contrast, it is possible to find sour crude oil, which
has a higher sulfur content.
Light crude is crude oil which has a low percentage of wax. This means that
the viscosity of the oil is much lower, which makes it easier to pump,
transport, and handle. Light crude is also less likely to clog processing
systems. This is in contrast with heavy crude, crude oil which is thicker and of
generally lower quality.
In the case of light sweet crude oil, the crude oil is both light, with a low wax
content, and sweet, with a low sulfur content. It also tends to contain a larger
percentage of fractions which can be converted into fuels which are in high
demand. Because light sweet crude oil has so many desirable traits, it is often
a very desirable product, with many refineries preferring to work with light
sweet crude oil whenever possible. The clamor for light sweet crude oil puts
heavy pressure on areas with large deposits of light sweet crude oil, such as
Alaska.
In times of oil scarcity, refineries will work with other forms of crude oil, but
this can cause a corresponding decline in fuel quality. Refineries can also
charge a premium for their high-quality fuels, reflecting the difficulty they have
in obtaining the raw materials. This can directly affect consumers, many of
whom use products derived from light sweet crude oil in their daily lives.
 BIG OIL
The term “Big Oil” is used to refer to major oil companies such as British
Petroleum, Shell, ExxonMobil, and Chevron. These companies control a large
share of the market for oil and petroleum products. The 16% of the world's oil
which is available to private corporations is dominated by these companies,
which have immense collective economic, social, and political power,
14
especially in industrialized nations which rely heavily on the products of crude
oil.
National governments of oil producing nations constitute “Really Big Oil”,

which controls 84% of the available global oil supplies. National oil companies
are often criticized for being poorly managed and sluggish, which results in
disruptions in oil supplies globally. These countries banded together in 1960
to form an Organization of the Petroleum Exporting Countries (OPEC), which
coordinates oil production and sets global prices per barrel. In theory, OPEC
is supposed to control oil reserves to ensure a steady supply of oil to
companies which process it for sale around the world, but in actuality, OPEC
dominates the global oil market, wielding a considerable amount of political
and economic clout.
In addition to pumping their own oil, Big Oil companies purchase oil from
OPEC member nations and export it to processing plants and refineries which
can be found all over the world. Using existing data on supply and demand,
the oil is refined to yield products such as gasoline and natural gas. In some
nations, Big Oil has been accused of manipulating available supplies and
prices to turn a profit. Especially in nations where the majority of citizens are
forced to drive to commute, fluctuations in gas prices can be frustrating and
incomprehensible.
Because Big Oil has limited access to global oil supplies, it works hard to
extract oil from sites it is permitted to access. As a result, oil supplies are
being rapidly depleted in areas managed by Big Oil, which has also
developed techniques for extracting oil from sand, shale, and other materials
which harbor trace amounts of the precious resource. The vast reserves held
by OPEC members are a source of frustration to Big Oil, because they are
being managed inefficiently, and could have much higher yields. Fluctuating
oil prices as a result are also difficult to explain to consumers, especially when
most Big Oil companies manage to turn a very large profit globally.
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 BUNKER FUEL
Bunker fuel is a type of liquid fuel which is fractionally distilled from crude oil.
Bunker fuel is also known as fuel oil, and a number of different classifications
around the world are used to describe fuel oil; these classifications break
bunker fuel into different categories based on its chemical composition,
intended purpose, and boiling temperature. In comparison with other
petroleum products, bunker fuel is extremely crude and highly polluting.
After crude oil is extracted from the ground and brought to a refinery, it goes
through a process called fractional distillation. During fractional distillation, the
oil is heated, causing different types of oil within the crude to separate as they
have different boiling points. Classically, fractional distillation is accomplished
in a distillation column, which siphoned off various fractions as they
precipitated out. During fractional distillation, oil refineries can also use
catalysts to “crack” the hydrocarbon chains in the crude oil to create specific
oil fractions.
Small molecules like those in propane gas, naptha, gasoline for cars, and jet
fuel have relatively low boiling points, and they are removed at the start of the
fractional distillation process. Heavier petroleum products like diesel and
lubricating oil precipitate out more slowly, and bunker oil is literally the bottom
of the barrel; the only thing more dense than bunker fuel is the residue which
is mixed with tar for paving roads and sealing roofs.
The hydrocarbon chains in bunker fuel are very long, and this fuel is highly
viscous as a result. Bunker fuel is also heavily contaminated with various
substances which cannot be removed, so when it is burned, it pollutes
heavily. The thick fuel is difficult for most engines to burn since it must be
heated before it will combust, so it tends to be used in large engines like those
on board ships. Ships have enough space to heat bunker fuel before feeding
it into their engines, and their extremely sophisticated engines are capable of
burning a wide range of fuels, including low quality bunker fuel.
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Many oil spills have involved bunker fuel, leading some environmental
organizations to call for a ban on the substance. It is extremely difficult to
clean up and it coats birds and shorelines very effectively, because it's so
dense. Because bunker fuel also carries a range of contaminants, it can
represent a serious environmental hazard when it spills. However, bunker fuel
is also extremely cheap, and many shipping companies would lobby against
any proposed ban out of concern for a sudden jump in shipping costs.
2.5 CRUDE OIL RESERVOIRS
Three conditions must be present for oil reservoirs to form: a source rock rich
in hydrocarbon material buried deep enough for subterranean heat to cook it
into oil; a porous and permeable reservoir rock for it to accumulate in; and a
cap rock (seal) or other mechanism that prevents it from escaping to the
surface. Within these reservoirs, fluids will typically organize themselves like a
three-layer cake with a layer of water below the oil layer and a layer of gas
above it, although the different layers vary in size between reservoirs.
Because most hydrocarbons are lighter than rock or water, they often migrate
upward through adjacent rock layers until either reaching the surface or
becoming trapped within porous rocks (known as reservoirs) by impermeable
rocks above. However, the process is influenced by underground water flows,
causing oil to migrate hundreds of kilometres horizontally or even short
distances downward before becoming trapped in a reservoir. When
hydrocarbons are concentrated in a trap, an oil field forms, from which the
liquid can be extracted by drilling and pumping.
The reactions that produce oil and natural gas are often modeled as first order
breakdown reactions, where hydrocarbons are broken down to oil and natural
gas by a set of parallel reactions, and oil eventually breaks down to natural
gas by another set of reactions. The latter set is regularly used in
petrochemical plants and oil refineries.
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Wells are drilled into oil reservoirs to extract the crude oil. "Natural lift"
production methods that rely on the natural reservoir pressure to force the oil
to the surface are usually sufficient for a while after reservoirs are first tapped.
In some reservoirs, such as in the Middle East, the natural pressure is
sufficient over a long time. The natural pressure in many reservoirs, however,
eventually dissipates. Then the oil must be pumped out using “artificial lift”
created by mechanical pumps powered by gas or electricity. Over time, these
"primary" methods become less effective and "secondary" production
methods may be used. A common secondary method is “waterflood” or
injection of water into the reservoir to increase pressure and force the oil to
the drilled shaft or "wellbore." Eventually "tertiary" or "enhanced" oil recovery
methods may be used to increase the oil's flow characteristics by injecting
steam, carbon dioxide and other gases or chemicals into the reservoir. In the
United States, primary production methods account for less than 40% of the
oil produced on a daily basis, secondary methods account for about half, and
tertiary recovery the remaining 10%. Extracting oil (or “bitumen”) from oil/tar
sand and oil shale deposits requires mining the sand or shale and heating it in
a vessel or retort, or using “in-situ” methods of injecting heated liquids into the
deposit and then pumping out the oil-saturated liquid.
CHAPTER 3
18
ABOUT THE CRUDE OIL IN DEPTH
 Crude Oil Price

 Crude Oil Reserves
 Crude Oil Futures
 Crude Oil Market
 Crude Oil Distillation
 Crude Oil Commodities
 Crude Oil Stock
3.1 CRUDE OIL PRICE : After the collapse of the OPEC-administered

pricing system in 1985, and a short lived experiment with netback pricing, oil-
exporting countries adopted a market-linked pricing mechanism. First adopted
by PEMEX in 1986, market-linked pricing was widely accepted, and by 1988
became and still is the main method for pricing crude oil in international trade.
The current reference, or pricing markers, are Brent, WTI, and Dubai/Oman.
HISTORY OF ILLINOIS BASIN POSTED CRUDE OIL PRICES
Crude Oil Price Chart from 1977 to 2003 Monthly Price Chart 1998-April 2009
History & Analysis of Crude Oil Prices from WTRG Economics
Year, Month, Monthly Average, and Yearly Average
2010
January $69.85 July $67.91

February $68.04 August $68.34
March $72.90 September $67.18
April $76.31 October $73.63
May $66.25 November $76.00
June $67.12 December $81.01
2010 Average $71.21
Table 1.1
2009
19
March $40.13/$39.88 September $60.98
April $42.45/$42.20 October $67.43
May $51.27/$51.02 November $69.43
June $61.71/$61.46 December $66.33
2009 Average $53.56/$53.48
Table 1.2
Prior to February 26th, 2009, the posted price for CountryMark, Plains
and Bi-Petro was identical. After that date CountryMark posted price is
25 cents higher.
2008

2008 Average $91.48
Table 1.3
2007

June $59.25 December $83-46
2007 Average $64.20
Table 1.4
2006

20
2006 Average $58.30
Table 1.5
2005

February* $42.91/$41.11 August $58.07
March* $48.55/$47.80 September $58.56
April* $46.63/$46.38 October $55.12
May* $43.27/$43.02 November $51.18
June* $49.56/$49.80 December $52.31
2005 Average* $50.04/$49.81
Table 1.6
*From February through June the posted price was not the same for all three
crude purchasers in the Illinois Basin. The first price is Countrymark Coop
posted price average, the second price is Plains/Bi-Petro posted price
average.
2004

2004 Average $37.41
Table 1.7
2003

21
2003 Average $27.69
Table 1.8
2002

2002 Average $22.81
Table 1.9
2001

2001 Average $23.00
Table 1.10
2000

22
Yearly total
$27.40
Average
Table 1.11
Cut backs on imports, reformulated gasoline, and taxes caused record high
gasoline prices in Midwest, reaching over $2.00 per gallon. Saudi Arabia
wanting to boost import levels but other OPEC nations against it. (June &
July)
1999

Yearly Average $16.55
Table 1.12
1998

Table 1.13
Save Domestic Oil filed petition to stop the dumping of oil on U. S. markets
by Saudi Arabia, Venezuela and Mexico.
1997

23
Table 1.14
1996

Table 1.15
1995

Table 1.16
1994

Table 1.17
24
1993

Table 1.18
1992

Table 1.19
1991

Table 1.20
25
1990
The price of crude oil spiked in 1990 due to the Iraqi invasion of Kuwait
and the Gulf War. The 1990s brought improved technology in drilling
and production techniques.

Table 1.21
1989

Table 1.22
1988

Table 1.23
1987
26
March $18.00 November $17.50
Table 1.24
1986

April 12.50 December $15.50
May $13.00 Yearly Average $14.64
Table 1.25
1985
From 1982 to 1985 OPEC attempted to set production quotas low
enough to stabilze prices. Repeated failures occured because various
members of OPEC would produce beyond their quotas. Saudi Arabia
acted as the swing producer cutting its production to stem the free
falling prices. In August of 1985 they tired of this role and linked their
oil prices to the spot market and in early 1986 increased production
from 2 MMBPD to 5 MMBPD.
January $26.00
Feb. thru
$27.00 Yearly Averag $26.50
December
Table 1.26
1984
November $28.00
December $27.00 Yearly Average $27.50
Table 1.27
1983
January $30.00
27
Feb. thru Oct.,
$29.00 Yearly Average $29.00
1984
Table 1.28
1982

June 31.00 December $31.00
July $31.00 Yearly Average $31.55
Table 1.29
1981
Events in Iran and Iraq led to another round of crude oil price increases
in 1979 and 1980. The Iranian revolution resulted in the loss of 2 to 2.5
million barrels of oil per day between November of 1978 and June of
1979. In 1980 Iraq's crude oil production fell 2.7MMBPD and Iran's
production by 600,000 barrels per day during the Iran/Iraq War. The
combination of these two events resulted in crude oil prices more than
doubling from $14 in 1978 to $35 per barrel in 1981.
Released &
Lower Tier - IL Upper Tier - IL
Stripper
January $6.94 $15.07 $38.00
February $6.99 $15.19 $38.00
March $38.00
April $ $38.00
April, 1981 thru
$35.00
Jan.,1982
Table 1.30
1980
Beginning in the 1980s the US became more energy efficient with better
insulation of homes, energy efficiency in industrial processes, and
automobiles with higher gas mileage.
Lower Tier - IL Upper Tier - IL Released &
28
Stripper
January $6.34 $13.74 $38.00
February $6.38 $13.83 $38.00
March $6.42 $13.93 $38.00
April $6.46 $14.03 $38.00
May $6.51 $14.13 $38.00
June $6.56 $14.24 $38.00
July $6.61 $14.35 $38.00
August $6.66 $14.46 $38.00
September $6.72 $14.58 $36.00
October $6.78 $14.70 $36.00
November $6.84 $14.83 $36.00
December $6.89 $14.95 $37.00
Table 1.31
1979
Released &
Stripper
January $5.87 $12.68 $15.95
February $5.90 $12.75 $15.95
March $5.94 $12.83 $15.95
April $5.98 $12.91 $18.20
May $6.02 $12.99 $19.20
June $6.06 $13.08 $24.50
July $6.10 $13.17 $26.50
August $6.14 $13.26 $28.50
September $6.18 $13.36 $31.00
October $6.22 $13.46 $32.50
November $6.26 $13.56 $35.00
December $6.30 $13.65 $38.00
Table 1.32
29
1978
Released &
Stripper
January $5.46 $11.78 $14.95
February $5.48 $11.83 $14.95
March $5.51 $11.89 $14.95
April $5.54 $11.95 $14.95
May $5.57 $12.01 $14.95
June $5.60 $12.08 $14.95
July $5.63 $12.15 $14.95
August $5.66 $12.22 $14.95
September $5.71 $12.32 $14.95
October $5.76 $12.43 $14.95
November $5.81 $12.54 $14.95
December $5.84 $12.61 $14.95
Table 1.33
1977
Released &
Stripper
January $5.33 $11.35 $14.00
March $5.33 $10.90 $14.00
August $5.33 $10.90 $14.95
September $5.36 $11.16 $14.95
October $5.39 $11.42 $14.95
November $5.42 $11.68 $14.95
December $5.44 $11.73 $14.95
Table 1.34
1976
Released &
Stripper
February $5.20 $11.28 $13.10
March $5.23 $11.35 $13.10
April $5.26 $11.42 $13.10
May $5.30 $11.49 $13.10
30
June $5.33 $11.55 $13.10
Prices froze at this level until January 1, 1977, except stripper (uncontrolled).
September $14.00
Table 1.35
1975
Released &
Stripper
February $5.20 $11.60
April $5.20 $11.90
July $5.20 $12.40
September $5.20 $12.40
October $5.20 $12.60
November $5.20 $13.10
Table 1.36
1974
Released &
Lower Tier – IL Upper Tier – IL
Stripper
August $5.20 $10.30
December $5.20 $11.20
Table 1.37
1973
The Yom Kippur War started with an attack on Israel by Syria and Egypt
on October 5, 1973. The US and many other countries showed support
to Israel. As a result Arab exporting nations imposed an embargo on
the nations supporting Israel, still known as the Arab Oil Embargo here
in the United States.
Released &
Stripper
April $3.60
August $4.20
September $4.20 $5.20
October $4.20 $5.85
November $4.20 $8.55
December $5.20 $8.55
31
Table 1.38
1971
In March of 1971, the balance of power to control crude oil prices shifted
from Texas, Oklahoma and Louisiana to OPEC. By the end of 1971 six
other nations had joined OPEC: Qatar, Indonesia, Libya, United Arab
Emirates, Alageria and Nigeria.
1970
November 3.60
Beginning of Tier Released &
Prices Stripper
December 3.60
Table 1.39
1969 back to 1946
April 1, 1969 $3.35

March 17, 1969 $3.30
March 1, 1969 $3.25
July 1, 1968 $3.20
August 1, 1967 $3.15
December 6, 1965 $3.10
Gravity pricing
October 11, 1963 $3.00
established
OPEC was
formed in 1960
with five
founding
August 29, 1960 $3.00
members: Iran,
Iraq, Kuwait,
Saudi Arabia and
Venezuela
June 20, 1960 $2.85
December 13,
$3.00
1957
January 9, 1957 $3.15
June 12, 1956 $2.90
October 15, 1955 $3.00
October 20, 1954 $2.90
June 15, 1953 $3.02
32
November 28,
$2.77
1947
October 15, 1947 $2.27
March 10, 1947 $2.07
November 15,
$1.82
1946
July 25, 1946 $1.72
April 1, 1946 $1.47
March 31, 1946 $1.37
Table 1.40
3.2 CRUDE OIL RESERVES
 Technically, the use of charts and indicators is essential to

accommodate different strategies. Additionally, crude oil trading can be
executed through various ways, such as futures, contract for difference (CFD)
and more.
 While conventional crude oil is currently the major source of petroleum
on the planet, it actually makes up a minority of crude oil currently in reserve.
A bit less than one-third of the crude oil known on the planet is in
conventional form.
3.3 CRUDE OIL FUTURES
3.3a What is an oil future market?
An oil futures market is one of many markets structured around commodities.

Commodities are physical goods that can be traded in a variety of ways.
Commodity markets began as a way to secure future prices for producers
delivering the physical materials, but now speculation and sophisticated value
investment dominate the commodities markets.
33
Finance professionals refer to an oil futures market as a market geared
toward the buying and selling of futures contracts for oil. Futures contracts are
agreements that fix a price for future delivery of a commodity. Oil is a
commodity, whether it is crude or refined. Buyers and sellers of oil futures
agree to a fixed price. The goal of speculation on oil futures is to benefit from
a rise or decrease in the price between the time that the oil future contract is
agreed on and the time that the contract is “settled.”
The settlement for a futures contract works in two ways: through physical
delivery to a buyer, or through a cash settlement that represents the agreed
delivery. Some call the settlement time “expiration” because the futures
contract is no longer traded after that time. Traders hope to profit at expiration
or settlement of a futures contract due to a projected change in price.
Oil futures markets vary. Specific oil futures market opportunities exist for
crude oil, where global distribution is often a key element of these price
speculations. Refined oil has its own futures contracts, as does heating oil
and other specific petroleum products. All of these are carefully tracked by
investors as physical commodities that are valuable for daily use. Oil futures
also vary according to different “grades” of oil based on factors like viscosity
and sulfur content.
Those involved in looking at oil futures will probably keep an eye on all of the
news coming out of global markets about oil producers, such as OPEC or
other consortiums. The general demand for oil will also be a very relevant
factor. Political turmoil can sometimes affect the price of oil. Speculators can
at times “drive up” the market for oil, which also contributes to volatility for this
commodity.
Commodity futures, including oil futures, are often traded through specific
commodities markets. Traders can get more information on specific oil futures
market opportunities from exchanges that support this kind of trading.
Individual investors will often need brokers to pursue these opportunities on
their behalf. Some will choose to be involved passively through funds or other
financial products.
34
3.3b Crude oil futures
 NYMEX’s trading hours are between 9am and 2.30pm Eastern

Standard Time. Controlling 1,000 barrels means that each crude oil futures
contract increases or decreases by $1,000 every time the value of crude oil
changes by one dollar.
 Traders hope to profit at expiration or settlement of a futures contract
due to a projected change in price. Oil futures markets vary. Specific oil
futures market opportunities exist for crude oil, where global distribution is
often a key element of these price speculations.
3.3c What is futures oil trading??
 When most people think of futures trading, two things come to mind:
extraordinary financial risk, and very rich people. Those two things often go
hand in hand, but nowhere is that the case more so than in the world of
futures trading. Futures are contracts for the delivery of specified amounts of
a certain commodity, on a certain date in the future. Many of the commodities
involved in futures trading are agricultural, such as wheat, pork bellies, and
orange juice concentrate. However, futures contracts for many other
“commodities” such as precious metals, currencies, and even interest rates,
are also traded and exchanged.
 Futures trading is unlike many other forms of investing, because one is

not required to own or even buy the commodity. All that is necessary is to
make a speculation on where the price of a particular commodity is going, and
make a decision based on that. If an investor were speculating on crude oil,
for instance, and he or she expected the price to go up in the future, that
investor would buy crude oil futures contracts. And if he or she expected that
the price would be going down, the investor would sell crude oil futures.
35
 The great majority of contracts exchanged in futures trading are traded
by speculators, who liquidate their position before the contract expires, taking
either a profit or a loss from the transaction. In other words, the delivery of the
commodity is not then the responsibility of the investor. The speculator
involved in futures trading does, however, play an important role in the
economy. Most of all, they make it easier for those who actually need to
deliver or take delivery of commodities, to plan for the future.
 For example, a wheat farmer may want to guarantee the price he will
get for the wheat he has growing but has not yet harvested. To secure his
price, he can sell a futures contract equal to the amount of wheat he expects
to harvest. A manufacturer such as a bread company may buy the contract,
also guaranteeing the price they will pay when the contract comes due. This
avoids unpleasant surprises for both parties which would possibly occur if
they had no other option than to buy and sell and the current market price
when it came time for them to do business. Most likely the two parties won’t
need to buy and sell at the same time, though, and this is where the role of
the speculator is so important. Their involvement in futures trading means
there is always someone to buy the contracts being sold, or to sell the ones
being purchased.
3.3d Heating oil futures
Heating oil futures are contracts for future delivery of heating oil. One contract
equals 42,000 gallons (approximately 158,987 liters) of heating oil, and the
largest number of contracts that someone who is neither a producer nor a
commercial end user can hold is 7,000. End users should also consider the
cost of shipping from a heating oil delivery point when figuring out the price of
the contracts. Heating oil futures contracts have a life span of 18 months, and
a new one comes into existence every month as an old one expires. Pricing is
in US Dollars (USD) per gallon (approximately 3.8 liters), and the minimum
trading price change is $0.0001 USD.
36
Heating oil, gasoline, and crude oil are all traded in the futures market, with
the respective trade symbols of HO, RBOB, and CL. Both heating oil and
gasoline are products of crude oil. Options on all three products also trade.
The NYMEX, formerly the New York Mercantile Exchange, is the principal
exchange for trading heating oil and gasoline in the US. London is the home
for another active and competitive trading exchange for petroleum products,
the Intercontinental Exchange (ICE).
Refineries are the primary source of heating oil, and they are likely to sell
heating oil futures if they think the prices are high enough to assure good
profits. End users, such as the companies that deliver heating oil to
customers, might buy heating oil futures contracts. The traders who think
heating oil prices are going to rise enter into contracts to buy the commodity,
and those who think prices will go down enter into contracts to sell. Traders,
whether they are buyers or sellers of heating oil futures, will neither make nor
take delivery of the product. Instead, traders who were buyers will sell, and
traders who were sellers will buy back contracts before they have to deal with
delivery of the actual product.
Traders who think both the price and the market volatility are going to rise
might choose to buy calls. Those who expect the price to rise but are worried
about surprises to the downside might buy futures and buy puts. Traders who
think the volatility of heating oil futures will shrink might sell both puts and
calls. Puts and calls can also be used wisely by end-users and by producers
to protect themselves against large and unwelcome swings in the price of
heating oil futures.
3.4 CRUDE OIL MARKET

and more.
37
 Some forms of crude oil are considered more valuable than others,
with light sweet crude typically commanding the highest prices on the
market. Sweet crude is a form of crude oil which has a sulfur content below .
5%. Typically sweet crude also has lower levels of other impurities, and the
name is a reference to the flavor; sweet crude has a faintly sweet taste, for
those willing to give it a try.
3.5 CRUDE OIL DISTILLATION
Hydrocarbons are also chemically altered in a a process called alkylation,

which combines compounds of a low molecular weight with a catalyst and
introduces the mixture to the hydrocarbons being altered. The process
whereby crude oil is turned into gasoline is carried on at high volume all over
the world.
 The distillation process also eats up a lot of resources, making it even

less efficient than traditional crude oil distillation. Oil shale processing
programs have been piloted in several countries; the rock itself has been used
in industrial processes since the 1800s.
 A distillation unit is a set of machinery that is used to separate two or

more mixed liquids by heating the mixture until each component reaches its
boiling point. As each part of the mixture boils — turns to vapor — it can be
38
segregated. A distillation unit consists of a boiler, a vertical space or column
where the separation takes place, a condenser to turn the vapors back to
liquid and storage vessels to store the separated liquids.\
 The process begins with a boiler heating the feed stock of mixed
liquids. The boiler can be fueled by a variety of products, including fuel oil,
natural gas, and coal. Some boilers are fueled by a byproduct of the mixed
liquid that has already come through the process. Industrial distillation
processes where there is steam available can also use steam to heat the feed
stock.
 As the component of the feed stock that has the lowest boiling point
reaches that boiling point, it turns to vapor and rises in the column. The
vapors are caught and piped toward a condenser. The condenser absorbs
heat from the segregated vapor, turning it back into a liquid. The segregated
liquid, or distillate, is transferred from the condenser to a storage vessel. To
improve the purity of the distillate, the process might be repeated to further
remove elements not identical to the distillate.
 Distillation
 Distilled Water
 Distillation Unit
 Water Distillation Unit
 Water Distillation Equipment
 Steam Distillation
 Distilled Water Machine
39
 A fractional distillation unit separates mixed liquids where the boiling
points are similar. A fractional distillation column has a series of levels using
trays or packing where the feed stock is vaporized, condensed and vaporized
again. The distillation process is repeated multiple times until the different
components have been thoroughly separated. An example of fractional
distillation is the separation of various grades of gasoline and oil from a crude
oil stock.
 A simple distillation unit is used when the feed stock is a single liquid
with solid contaminants, such as the process of distilling plain water from
seawater. When the seawater boils, the water molecules turn to vapor, and
the salt is released from suspension in the water. The pure vaporized water,
in the form of steam, is cooled to turn it back into liquid form.
 A steam distillation unit forces steam up through a quantity of feed

stock to vaporize liquid from within the feed stock. Steam distillation is suitable
for stable materials that do not dissolve easily in water. The liquid vaporizes
out of the mixture, often plant material, and mixes with the steam but
separates readily after it is condensed and the steam turns back to water.
Steam distillation is used to produce a large variety of essential plant oils,
such as clary sage, peppermint and lemongrass.
 An “oil vacuum” can be one of several things, depending on the context

in which the term is brought up. In all cases, the use of this term implies the
use of vacuum technology in association with petroleum products to
accomplish some sort of desired function.
40
 Several companies manufacture oil vacuums which are designed to be
used to pull oil out of equipment so that it can be serviced. An example might
be an oil change for a car, lawn mower, or similar piece of equipment. Using
an oil vacuum ensures that as much of the old oil as possible is removed. The
vacuum may have a filtration function which allows people to pull out the oil,
filter it, and then return it when the service is over, or it may be designed to
pump the oil into a drum for disposal.
Another type of oil vacuum is a vacuum designed for distillation of petroleum

products. In this case, the vacuum is actually a very large chamber which is
capable of creating a vacuum, thereby lowering pressure and reducing the
boiling point. When the oil is placed in the vacuum chamber, components with
a higher boiling point vaporize away, allowing for the distillation of various
useful components within crude oil or partially processed oil. This type of oil
vacuum is a highly specialized piece of equipment which may need to be
custom designed for a specific refinery.
 Oil Vacuum
 Vacuum Pump Oil
 High Vacuum Oil
 High Vacuum Pump Oil
 Oil Sealed Vacuum Pump
 Vacuum Oil Change Pump
 Vacuum Pump Oil Filter
 The third type of oil vacuum is a fictional device which is employed in a

scam. The terms of the scam very, but generally speaking, people are invited
to invest a company which is “developing oil vacuum technology” which will
somehow revolutionize the oil industry by pulling out normally unrecoverable
oil. These systems do not exist, although some oil companies have in fact
41
developed technology which is designed to increase the amount of
recoverable oil in materials like oil shale and oil sands.
The type of oil vacuum under discussion is usually clear from the context of
the conversation. In the case of the first example, oil vacuums can be seen at
repair shops and other facilities where equipment servicing is handled, and
people who work on their own equipment may purchase lightweight models
for personal use. In the second instance, oil vacuums are expensive and
complex pieces of refinery equipment, while in the third case, the oil vacuum
exists solely in the imagination.
Crude oil is separated into different chains through distillation. During

distillation, crude oil is heated in a distillation column. Collection trays are
placed at differing heights in the column. As the crude oil is heated, the
vapors formed through the boiling process rise up the column. The lighter
chains take longer to condense and collect in the trays towards the top and
the heavier chains condense more quickly and collect in the trays towards the
middle and bottom of the distillation column. Once they have been separated,
they are treated further through various processes to create the different
petroleum products.
 Gasoline
 Gasoline Engines
 Free Gasoline
 Gasoline Prices
 Marine Gasoline
 Diesel Gasoline
3.6 CRUDE OIL COMMODITIES
42
3.6a What is a commodity?
In the broadest sense, a commodity is anything that has value, from watches
to time to oranges. In a more specific market sense, however, a commodity is
an item which is roughly the same market value across the board, with no
difference based on quality. Watches, for examples, are not market
commodities, because a well-crafted, artisan watch might cost a hundred
times as much as a cheap, lower-quality watch. Copper, on the other hand, is
always roughly the same price at a given time, because copper is always
copper.
Because of this feature of a commodity, it acts as an excellent investment

vehicle, and so fluctuates more or less entirely based on the market itself. A
company that mines copper, for example, may gain or lose value based on
any number of factors, including the hiring of a new CEO, new legislation in
the company’s home country, or simply a perceived weakness in the country.
Copper itself, however, has a value determined only by the global supply, the
global demand, and the amount of investment being shuffled into copper.
The mainstream commodity market can be split into a number of different

markets: precious metals, industrial metals, livestock, agricultural products,
energy, and some commodities that don’t easily fall into a classification.
Precious metals include gold, silver, platinum, and palladium. Industrial metals
include aluminum, aluminum alloy, nickel, lead, zinc, tin, recycled steel, and
copper. Livestock includes live cattle, feeder cattle, pork bellies, and lean
hogs. Agricultural products include soybeans, soybean oil, soybean meal,
wheat, cotton number two, sugar numbers eleven and fourteen, wheat, corn,
oats, rice, cocoa, and coffee. Energy includes ethanol, heating oil, propane,
natural gas, WTI crude oil, Brent crude oil, Gulf Coast gasoline, RBOB
gasoline, and uranium. The commodity market also includes rubber, wool,
polypropylene, polyethylene, and palm oil.
43
Many other things could be considered a commodity as well, but they are not
traded on a global spot market, and so aren’t usually lumped in with the above
items when discussing the commodity market. These include things like rare
metals, such as silicon, cobalt, lithium, titanium, selenium, or magnesium,
minerals such as bromine or cement, or agricultural products like potatoes,
eggs, or flowers.
Each commodity is usually traded on a different market, and in a different

currency. Each commodity also has a minimum quantity that must be
purchased on the spot market. For example, the precious metals are traded in
units of one Troy ounce, with gold and silver traded on the CBOT exchange,
and platinum and palladium traded on the NYMEX, all in US Dollars (USD).
Almost all of the industrial metals are traded on the London Metal Exchange,
all in USD, and all by the metric ton. Most gasoline and oil futures are traded
in minimum quantities of 42,000 US gallons. Livestock, on the other hand, is
all traded on the Chicago Mercantile Exchange, in 40,000 pound increments.
Generally, when the stock market becomes volatile, people tend to move their
investments into the commodity markets, because they are less volatile.
Commodity markets are viewed as being one of the most efficient sorts of
markets, responding rapidly to any shift in supply and demand, reaching an
equilibrium point rather easily and without too much drastic fluctuation.
3.6b Commodity Index
 Commodities are attractive, in part, because the items that support

prices are actually physical, tangible items that people make use of in all
economies. Looking closer at commodity index funds will help investors pick
the ones that will work out best for them.
 The idea of weighting is that the index should better reflect the overall
movements in the particular market sector. While a commodity index serves
as a useful guide to whether or not it is worth investing in commodities as a
whole, it has other uses.
44
3.6c Commodity Trade
 The best commodity trading course should prepare you for what can
be the fast-paced and risky world of financial investment. A quality course will
generally introduce you to how commodity trading markets function and
related key concepts. Courses that offer information on investment trends can
also be a good option, as this may give you some ideas for future investment
opportunities.
 Futures are a type of commodities contract that is valued based on a
preset price and that trades on a commodities exchange, such as the
Chicago Mercantile Exchange Group. Some commodities trading jobs are
performed in the trading pits or floor of an exchange.
3.6d Commodity Exchange
 On the delivery date, which is the date when the purchase occurs, if
the commodity is higher in price than the contracted price, the futures
investor turns a profit on the price difference. Essentially, a commodities
exchange is a market for buying and selling commodities. In the investment
world, commodities are goods or investments bought and sold on a
commodities exchange.
 Generally, the commodity exchange will maintain a physical location
where trading activity takes place. Increasingly, a commodity exchange will
also provide online access to trading activity, including the ability to trade on
the exchange by electronic means.
3.6e Commodity Options
 This is the guaranteed price at which the investor can exercise the
option to buy or sell the commodity. The third characteristic of a commodity
45
option is the expiration date. This is the last possible date that the buyer has
the right to exercise his or her right to buy or sell the commodity option.
 Those people will still experience some losses, because the premium
is generally nonrefundable. Commodity options trading involves high risks
but the returns can also be high.
3.6f Commodity Charts
 They can be used to examine the past, understand the present, and
predict the future. To make commodity charts useful, an analyst must have
the skills to interpret the data and then determine a course of action.
 The best vendors are the first to offer new products integrated with
cross commodity pricing, charting, and modeling capabilities. Commodity
trading software should be strong on technical features.
3.7 COMMODITY PRODUCT SPREAD
A commodity-product spread involves the purchase of a given commodity and

a subsequent sale of products derived from commodities of the same type.
Generally, these two transactions take place simultaneously. However, if
there is a relatively small amount of time between the execution of the two
transactions, the strategy is still considered to be a commodity-product
spread.
It is also possible for a commodity-product spread to be conduced in reverse

sequence. That is, the purchase of commodities may take place after the sale
of products made with the same type of commodity. In both cases, there is
generally no more than a thirty-day window in between the two transactions
that compose the spread.
Under the broad classification of a commodity-product spread are a number of

specialized spreads. One common transaction of this nature is known as the
46
crack spread. Essentially, a crack spread is a commodity-product spread that
has to do with commodities such as crude oil. An example of a crack spread
would be the purchase of crude oil coupled with the sale of such products as
heating oil or gasoline.
3.7a Crack speed
Crack spreads are investing strategies that involve the spread on specific
types of commodities. The crack spread is focused on the spread that exists
between a core product and the end products that are developed and
marketed using the core product. Analyzing the crack spread can assist an
investor in purchasing futures that relate to the core product, while at the
same time considering the sale of futures options that are related to the
derivative products.
One of the best examples of how a crack spread works has to do with the
commodity of crude oil. This product serves as the basis for a wide range of
desirable goods, such as the sale of gasoline, heating oil, and even some
artificial fibers. Because of the range of end products that can be produced
with crude oil, securing futures options on the crude oil is often considered a
great investment strategy. At the same time, selling futures options on the
products created with crude oil at the right time can also help the investor to
realize a substantial profit from the venture.
A key element of determining the degree of crack spread has to do with not
only the range of end products that are created with the use of a core product,
but also the current market demand for those products. This can sometimes
involve considering the current level of demand within a given country or even
with a geographical region of the country. Using the example of the crude oil,
the investor would choose to acquire crude oil futures at the best possible
price. At the same time, the investor would attempt to sell futures options
involving gasoline, kerosene or polypropylene when the current market
47
demand is on the upswing, but before the demand begins to level out. By
understanding the current difference in value between the core product and
the end products, it is possible to determine the crack spread, and engage in
buying and selling to best advantage.
Like any investment strategy, the utilization of a crack spread involves

carefully researching the commodities involved, assessing current market
conditions, and projecting future performance. When utilized properly, a crack
spread can provide an investor with important information that can result in a
sizable return.
Another type of commodity-product spread is the crush spread. Crush

spreads usually have to do with foodstuffs, such as corn or soybeans. Like all
versions of the commodity-product spread, an investor may choose to
purchase soybean futures and then sell any futures associated with soybean
oil, meat substitutes made with soybeans, or dairy substitute products such as
soy milk.
The purpose of a commodity-product spread is to allow the investor to ride a

commodity market that is currently experiencing an upswing. The purchased
component will often be acquired at a good price, with the component sold
earning a return that covers the cost of the acquired commodity futures
contract. By watching the market and continually rolling over investments
within the commodities market, it is possible to earn a substantial return using
this strategy. In general, the application of a commodity-product spread is
expected to carry a low risk in comparison to other investments.
3.8 GOLD COMMODITY
 Gold values are changing constantly, and knowing specific things

about the gold market as a whole will give the individual investor a much
better vantage point for making key decisions about gold holdings. A starting
tip for gold commodity trading is to always evaluate raw gold prices. Some
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gold index tools will help any trader to keep on top of the price of gold at any
given point in time.
 He should decide what coin he wants to invest in, and get quotes from
the dealers he picked. Modern gold coin prices are based on the daily gold
commodity price plus a small premium, so the quotes received should be
fairly close.
3.8a COMMODITY PRICES : Managing the Insanity
Are Volatile Commodities Prices Driving You Crazy?
On the Supply Excellence blog, Mike Petro - Ariba’s Senior Category

Manager for Metals - wrote “The days of holding annual negotiations to set
fixed price direct material contracts are over” and stressed the need to
increasingly use price adjustment clauses in contracts with raw materials
suppliers.
Why Are Price Adjustment Clauses Necessary?
More than ever, suppliers are refusing to honor their commitments

for long-term fixed pricing. “There are cases of broken contracts all
over the place,” says Petro, who has observed that not even the
threat of legal action deters some suppliers in this time of rising
commodities prices. Petro also finds some suppliers refusing to
quote fixed prices for new projects, saying “We are seeing
suppliers that will actually drop out of a sourcing project based on
the fact that they can’t justify the risk of trying to lock in a fixed
price and still be competitive.”
What Should Price Adjustment Clauses Be Based On?
Price adjustment clauses should be closely tied to the indexes of

the applicable cost drivers for the commodity. A cost driver is “any
cost that impacts the final price of a commodity,” according to
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Petro. For example, he lists iron ore, scrap, fuel, energy, duties,
tariffs, taxes, and currency exchange rates as cost drivers for steel.
It’s important to know how the cost drivers are changing and the
proportion of each cost driver’s impact on the final price for the
commodities that you are buying.
How Often Should Prices Be Reviewable When Using A Price

Adjustment Clause?
“The time frame is dependent on the commodity and the volatility,” Petro
shares. “Most of the buyers we work with are looking at things quarterly,” but
monthly may be appropriate for some commodities.
3.9 CRUDE OIL STOCK
 Unlike a stock, though, the ETF is made up of different kinds of

securities and equities. Crude oil is a commodity. Commodities are physical
products that are traded in many different ways.
and more.
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CHAPTER 4
USEFUL FACTS TO BE KNOWN ABOUT CRUDE OIL
4.1 SOME QUESTIONS RELATED TO CRUDE OIL
4.1a What is crude oil etf??
A crude oil ETF is a sophisticated investment vehicle that blends the

traditional use of commodities futures contracts with modern opportunities for
the kind of real-time trading facilitated by the Internet. From beginners to
experienced financial trading professionals, many different kinds of individuals
are looking at how they can access a vast variety of funds and equities that
they can use to build a money-making portfolio. The crude oil ETF is a prime
example of some of the newer options that today’s investors are getting
educated about.
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An exchange traded fund (ETF) has several key characteristics. These types
of funds are traded in national exchanges. They are traded in much the same
way as a single stock, with a fluctuating price that gets charted throughout a
market day. Unlike a stock, though, the ETF is made up of different kinds of
securities and equities.
Crude oil is a commodity. Commodities are physical products that are traded
in many different ways. Making crude oil commodity values into an ETF
requires collecting different investment opportunities based on the value of
crude oil, and assembling them into a total investment “basket.” The end
result is that a crude oil ETF consists of a “financial product” that is actively
managed, bought and sold publicly, and traded at a fixed volume.
Considering buying into a crude oil ETF often raises many kinds of questions
related to the underlying issue of the value of oil. As some financial journalists
have pointed out in major media coverage of new markets, the value of oil has
the potential to be volatile. There’s also the potential for speculation which can
drive prices up or down. Combining this kind of volatility with the intraday
trading of an ETF can leave an investor exposed to some significant kinds of
risks.
Investors who are making sophisticated plays on crude oil might look at how
oil is currently used in its largest markets, where the U.S. represents the one
country with the greatest demand for this commodity. They might also study
actions by major producers like OPEC, a consortium of oil-producing
countries getting together to represent their best interests. The price of crude
oil, or refined oil for that matter, is closely intertwined with global politics and
policy. All of this means that a crude oil ETF is, in reality, a kind of “political”
investment, something that the trader should evaluate through the lens of
socioeconomic realities, and not just hard numbers, at least according to
some professionals. It’s incumbent on those who want to invest in these kinds
of funds to combine good technical analysis and risk research with a general
idea of what it means to “cash in on oil prices.”
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4.1b What is barrel of oil equivalent??
The barrel of oil equivalent (BOE) is a unit of energy used mainly for
comparing different forms of fuel reserves. It is defined as the energy released
by burning one barrel of crude oil. There are associated units of energy such
as the kilo barrel and the billion barrel equivalents, which are used for larger
scale issues.
One barrel of oil equivalent is the energy released through the burning of one
barrel of oil. This is defined as 42 gallons (about 159 liters) of oil. Exactly how
much energy this works out as in reality is unpredictable because oil comes in
different grades, which produce fuels at different rates. To deal with this
problem, most organizations use a standard measurement of energy for the
barrel of oil equivalent. For example, the United States Internal Revenue
Service (IRS) defines it as 5.8 million British thermal units (BTU). This is a
separate measure of energy that refers to the energy needed to heat one
pound of water by one degree Fahrenheit. As all pure water is identical, this is
a consistent unit.
There are several other ways to express the BOE. For example, one BOE is
the equivalent energy of around 1.7 megawatt hours in electricity. It is also
equivalent to the energy from 5,800 cubic feet of natural gas.
One of the main uses of the barrel of oil equivalent is in financial statements
by fuel companies. This is because it can be used to express amounts of both
oil and gas. A company that has both oil and gas reserves can therefore give
a single figure for its entire fuel reserves.
The barrel of oil equivalent is not useful in all circumstances. For example, it
does not provide sufficient information for buyers and sellers of crude oil. This
is because various types of oil are of different quality. Instead of BOE, the oil
industry used crude oil benchmarks, which organize different types of oil into
categories of similar variants.
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Similarly, the Organization of Petroleum Exporting Countries (OPEC), an
alliance of oil producing countries, does not keep track of prices by referring to
the barrel of oil equivalent. Instead, it uses a "basket" of oils to produce an
average price of 11 leading blends of oil. It is this basket price that OPEC
seeks to control by increasing or decreasing production of oil and thus supply.
4.1c What is the difference between oil & gasoline?
With continuous information in the media about rising or falling oil prices,
rising or falling fuel and gasoline prices, and the price per barrel of crude oil, it
can sometimes be confusing to understand the difference between oil and
gasoline. To help further the confusion, both oil and gasoline are surrounded
by numerous related terms that are sometimes used incorrectly.
Understanding the individual properties of oil and gas and how they relate to
one another will make it easier to understand the difference between the two.
When oil is referred to in the company of gasoline, crude oil is specifically

what is intended. Crude oil, or unrefined oil, is also called petroleum.
Petroleum is a naturally occurring liquid fossil fuel made up of multiple
hydrocarbons and other organic compounds that can be found in rock
formations of the Earth’s surface. Crude oil or petroleum isn’t useful until it is
refined into different products. Oil is extracted from the ground with oil wells
and sent to a refinery where the hydrocarbons are separated during distillation
and other chemical processes. After the oil is distilled, it is used to make a
variety of petroleum derivatives with fuel derivatives being the most common.
The major difference between oil and gasoline is the fact that gasoline is a
fuel derivative of oil. Its name is shortened to “gas” in the United States and
called “petrol,” which is shortened from “petroleum spirits,” in other places
around the world. Other fuel derivatives of oil are ethane, diesel fuel, jet fuel,
kerosene and natural gas. In addition to fuels, refined oil is also used to make
olefins, lubricants, wax, sulfur or sulfuric acid, tar, asphalt and many others.
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More specifically, gasoline is a liquid petroleum derivative that is primarily
used as fuel in internal combustion engines. Gasoline is produced in oil
refineries; however, this kind of virgin gas does not meet the specifications for
modern engines. Generally speaking, today’s gasoline is made of a mixture of
three different derivatives: paraffin, napthenes, and olefins. The ratios of the
mixture depend on the oil refinery doing the processing, the crude oil being
used and the octane rating of the gasoline that is to be produced, which is the
measure of resistance to normal combustion by gasoline.
Drilling and extracting crude oil from the ground coupled with burning oil and
its derivatives have created great social concerns surrounding the
environment. One of the largest concerns is oil’s contribution to global
warming. When oil and its derivatives, such as gasoline, are burned, carbon
dioxide is released, which is believed to contribute to global warming.
4.1d What is an oil importer?
An oil importer is a person or company that brings crude oil into a country for
processing, refining, and eventual sale in the form of various petroleum
products. Oil importers can work in the country of origin, as well as a
destination country. These businesses are part of the global oil industry that
keeps oil moving to locations where it is needed at the optimal prices.
The United States, Japan, China, Germany, and South Korea are among the
top importers of oil worldwide. Oil importers in these nations work with
producers of oil to purchase crude oil of varying grades, depending on current
market demands. The highest grades of crude can be quite costly, as they
tend to be consistently and heavily needed to keep up sufficient refinery
production. The importer negotiates with a company that has oil to sell and
finds domestic buyers for the product to ensure that imports have a
destination once they reach the country.
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An oil importer is involved in selecting oil for purchase, arranging for transport,
and domestic movements of oil within a country to get it to a buyer. Once the
oil is delivered to a refinery or storage facility, it is the buyer's responsibility to
handle the crude from there. The oil is processed to yield a variety of products
to meet demand for everything from gasoline to bunker fuel.
Major exporters of oil include Saudi Arabia, Russia, Norway, Iran, and
Venezuela. Importers typically establish branch offices in these nations or
develop relationships with companies in these nations to facilitate trade of oil.
Having contacts and connections in the industry provides an oil importer with
opportunities that might not be available to smaller and lower level importers.
An oil importer must be sensitive to market pressures that could influence the
price of oil, as well as issues such as oil spills, refinery fires, and other events
that could interfere with oil supplies. Importers are also aware of how demand
fluctuates so they can act quickly to take advantage of changing situations
and circumstances.
Nations that import oil may also export it, selling oil from their own wells to
nations that have a demand for crude of that particular grade. Globally, oil
moves along pipelines and tankers from origins to destinations across varying
terrain and environmental conditions. An oil importer must be alert to events
all over the world because the interconnected nature of the oil industry allows
events in one nation to influence conditions in another.
4.1e Best tips for crude oil trading
The volatility in the commodities market is an aspect that an individual should

understand before plunging into crude oil trading. Equally, the use of both
fundamental and technical analysis is highly recommended, whether trading
live or in a demo. Thus, a trader should constantly stay abreast of the many
factors that influence oil prices, such as global supply and demand, crude oil
type, geopolitical events, natural disasters and so forth. Technically, the use
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of charts and indicators is essential to accommodate different strategies.
Additionally, crude oil trading can be executed through various ways, such as
futures, contract for difference (CFD) and more.
For an effective crude oil trading strategy, a trader should watch the important
information regarding this commodity. He or she should ideally know current
production and consumption trends. A trader can access this useful
information through many authoritative websites at no cost. Daily global
supply should be monitored closely because any disruption can send crude oil
prices soaring. In this instance, a trader should get on the buying side of the
trade.
At the extreme, a geopolitical event, such as the Arab Oil Embargo of 1973,
will likely cut the supply chain and spawn an astronomical rise in oil prices
within weeks. Similarly, natural disasters, such as Hurricane Katrina in 2005,
can impede supply and result in higher oil prices. Furthermore, a trader can
take advantage of oil stocks of companies from the countries with large oil
deposits when global demand increases. Therefore, the trader should keep an
eye on the global reserve figures. These tend to change when new oil wells
are discovered or the advance in technology allow them to be exploited.
A trader should ideally know the two main crude oil types: light and sweet,
and heavy and sour. The former is priced higher because it yields many
usable products, whereas the latter is priced lower to reflect the lower amount
of products it derives. This also is an important factor to consider when trading
oil stocks. Companies who are, for example, involved in the production of light
and sweet crude oil usually will gain more income than those who produce
heavy and sour crude, which becomes reflected in the stock prices.
Technically, a trader can and should learn how to read charts to diagnose the
market psychology at a given time. This diagnosis can help him or her identify
the likely course that oil prices will subsequently follow. Moreover, price and
volume indicators should be vigilantly monitored because they tend to give
telltale signs of buying or selling interest. A spike in volume, for example,
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followed by rising oil prices usually indicates an interest from buyers. This
should propel the trader to buy some crude oil in turn.
In crude oil trading, an individual should not pledge allegiance to either the
bull or bear side of the market. He or she should follow the prevailing trend,
whether it is an uptrend or downtrend. This way, he or she is likely to remain
profitable provided that his or her overall strategy is sound. Moreover, a trader
should refrain from calling a top or a bottom. He or she should wait for a
confirmation that the previous trend has reversed, which should be achieved
through constant appraisal of underlying conditions and technical patterns.
Reasonably, in a technical approach, a trader should use approximately three

indicators before taking a trade. For example, he or she can identify the key
support and resistance price levels. Secondly, he or she can observe the
moving averages to determine trend direction. Finally, he or she might consult
a momentum oscillator, such as a Relative Strength Index. If all three pieces
of information arrive at a similar conclusion regarding the possible following
price movement, then entering a position in the right direction would be ideal.
Combining fundamental and technical appraisals in crude oil trading is a

judicious choice that increases the chance for optimal results. Also, the trader
might choose to trade this commodity through the futures or spot markets,
CFDs, exchange traded funds (ETFs), oil stocks or other means. The avenue
through which a trader chooses to administer his or her crude oil trading
venture will depend on preference and other factors
4.1f Synthetic Oil
Synthetic oil is an oil product that contains additional chemical ingredients that
are not present in crude oil. These additional ingredients are synthesized or
created artificially and added to petroleum as a means of meeting specific
needs for lubrication. Synthetic oil products are used for everything from
lubricating large machinery at production plants to use in the engine of the
family car.
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The creation of synthetic oil can be traced back to the first half of the 20th
century. Germany made great use of synthetic oil products during World War
II, since the nation had very limited resources in terms of crude oil. The
synthetic oil was used to maintain motors in factories, keep ground vehicles
operational and even for use as heating oil in some cases.
By the 1960’s, the production of synthetic oil had become commonplace. Oil
corporations in the United States, the United Kingdom, Canada and South
Africa all developed artificial oil products for use in industry settings as well as
for consumers. Today, synthetic oil is routinely used in many different
settings, especially with the automobile industry.
Another major benefit of synthetic oil is a more efficient performance when an

engine or motor is started in cold weather. This means that the oil begins to
lubricate all the working parts more quickly than crude oil products. This
means less of a chance of gumming and unnecessary wear on the individual
components of the engine.
While synthetic oil was originally developed as a way to deal with a shortage
of crude oil products, the artificial oils of today are often utilized due to the
better performance. During periods when the price of crude oil rises
significantly, synthetic oil may also be a less expensive lubricant option.
4.1g How to become an oil importer?
Oil import and export is a very lucrative business, but requires a substantial
investment by an individual in terms of finance and overall knowledge. The
process to become an oil importer is intensive and requires a deep
understanding of the oil market and the political and economic factors that
affect it along with the financial capabilities to take advantage of market
trends. Even armed with each of these tools, it can sometimes be difficult to
forecast market swings, so an oil importer also must rely on a solid education.
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The profit margins of a well-run oil import business are incredibly high, and
the oil industry is heavily saturated with newcomers who are forced to adopt
unique and sometimes unconventional marketing techniques in order to gain
a foothold. Many of the larger players in the oil industry do not only produce
oil, but also sell it through their propriety distribution outlets. A small-time
investor that wants to become an oil importer obviously does not have the
resources to set up an elaborate refinery and distribution system, so they
often make purchases directly through the top corporations.
In order to become an oil importer, a businessperson must answer two very

important questions: where to get oil from and who to sell it to. The first
question is the easier of the two to answer since large crude oil corporations
have a monopoly over most of the world’s oil reserves. A relatively small
investor aspiring to become an oil importer has to find untapped supplies of
petroleum in order to gain entry within the field. Small, family-owned rigs are
often a good place to start since they can be contacted directly without an
intermediary.
An important fact for individuals to remember is that fuel for vehicles is only
one of many products that can be produced out of crude oil; commodities like
petroleum jelly and plastics also rely heavily on oil for their production. To
become a successful oil importer, an investor must think outside the box and
focus on supplying each of these industries while avoiding the fierce
competition that comes from some of the bigger corporations out there. The
key to success as an oil importer is the ability to see untapped opportunities
throughout various fields and the possession of resources to capitalize on
them.
4.1h Different kinds of job in the oil industry
Workers all over the world are employed in a variety of different jobs in the oil
industry. The jobs in the oil industry fall into one of the three phases of oil
production: exploration, refinement, and distribution. Some jobs, such as gas
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station sales clerks, are entry-level positions, while others such as drilling jobs
involve specialist training. Engineers, mechanics, and commodities traders all
play an important role in the oil industry.
Before drilling for oil can begin, oil companies first have to locate pockets of
oil hidden beneath the Earth. There are many jobs in the oil industry for
geologists and geophysical engineers who study rocks for traces of
hydrocarbons and use seismic readings to try to predict where heavy
concentrations of oil can be found. These engineers and scientists must also
determine whether oil reserves are accessible, and what costs would be
involved in extracting the oil.
Drilling jobs are among the most widely known of the jobs in the oil industry.
The drillers dig test wells in areas that the geologists believe oil to be.
Typically, drilling rigs include a crew of workers whose jobs range from
actually operating the rotary drills to conducting safety checks on the drilling
platform. Engineers and mechanics work alongside drilling teams to ensure
that the machinery works correctly and that oil pockets can be penetrated.
Production teams move in if the exploratory team finds sufficient oil to warrant
the digging of a well, and these teams are also comprised of engineers,
drillers, and mechanics.
Many jobs in the oil industry involve the transportation of oil. Barge operators
and oil tanker crews have to safely transport oil from rigs to onshore locations.
Helicopter pilots and small boat crews ferry production workers between rigs
and, when necessary, carry medical crews to rigs. There are many jobs in the
oil industry for truck drivers who bring crude oil to refineries and transport
refined oil to gas stations and oil wholesalers.
The people involved in selling oil have some of the most important jobs in the
oil industry. Commodities traders sell barrels of oil on the open market, and
their ability to get the best price directly impacts the company's profits.
Wholesalers employ traders to buy oil from refineries, and in turn agree to
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contracts to sell oil in the form of gasoline to gas stations around the world.
The only customer centered jobs are clerks and sales people in gas stations.
4.1i Oil stands
Oil sands are a mixture made from sand and an organic liquid known as
bitumen. The petroleum found in oil sand is sticky, black and viscous. Many
countries throughout the world have large deposits of the material, most
notably Canada and Venezuela. With the continued use of oil across the
world, the need for new sources of petroleum has created a strong demand
for oil sand mining. Until the 21st century, the cost of removing the oil from the
sand portion outweighed the profitability, but as the price per barrel rose
dramatically in the early part of the century, so did the expansion of oil sand
extraction.
Unlike traditional oil wells, extracting oil sands is a far more expensive and
time-consuming process. Crude oil generally will flow out of the ground under
its own pressure; however, oil sands do not contain the same pressure and
viscosity, so other methods must be employed. The most common practice for
oil sand extraction is through strip mining or a process known as in situ, which
heats up the oil sands using steam or hot air. Additionally, a method of
hydroprocessing must be used to purify the petroleum before it is sent to the
refinery.
Oil sands are believed to have been exploited by humans as early as

Neanderthal times, roughly 40,000 years ago. Archaeological evidence points
to their use use in the construction of tools and structures in ancient Syria and
Egypt. The process to separate the oil from the sand was perfected in France
by 1742, according to the Oil Museum of France. This process used a method
of vapor separation to remove the hydrocarbons, which could then be
harnessed as fuel. Today, the oil derived from oil sands is commonly seen in
the production of synthetic oils.
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The level of potential in oil sand mining throughout the world is immense.
Canada and Venezuela hold the equivalent of all the crude oil in the world,
with just each nation's oil sand deposits. Other areas, such as the United
States, Russia and the Middle East also have vast reserves of oil sands. As
traditional suppliers of crude oil, such as Saudi Arabia, use up the remainder
of their reserves, oil sands is predicted to continue to supply the world with
enough oil to offset the loss of traditional sources for decades.
4.1j Why measure oil in barrels?
Not every country measures oil in barrels, but that particular measurement is
still popular in the United States, which means it remains in the public
vernacular even if it has largely lost its significance in a mostly metric world
economy. At one point in history, oil producers did store oil in barrels,
although the size and nature of those barrels were far from standard.
When the first oil fields were tapped in Pennsylvania during the 1860s, there
were no steel 55 gallon drums in which to store the oil. Instead, the oil was
pumped into whatever containers could be found, including pickle barrels,
cracker barrels and whiskey barrels. There was no standard size oil barrel,
but eventually the wooden whiskey barrel became the most popular storage
container to hold crude oil until it could be shipped to be refined.
The standard whiskey barrel at the time held approximately 40 gallons of

liquid. Early oil producers wanted to ensure their customers received every
last drop they ordered, so they actually overfilled the barrels to 42 gallons.
This 42 US gallon mark (which is about 35 Imperial gallons and about 160
liters) became the standard measurement of oil in barrels produced in
American oil wells.
Eventually the wooden whiskey barrels gave way to steel drums which
provided more protection against leakage and contamination. Although these
steel drums were designed to hold 55 US gallons of oil, the standard 42 US
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gallon barrel is still considered to be the correct legal measurement of oil in
barrels. When oil producers or economists speak of the number of barrels of
oil produced in Saudi Arabia per day, for example, they are applying an
American measurement, not one the Saudis themselves might use.
The reason other oil-producing countries rarely use the term "barrels" to
measure their production rates is because they rarely store their products in
actual barrels anymore. The oil pumped out of the ground is more commonly
transported in large tanker trucks or through elaborate pipelines directly to the
refineries, or massive cargo ships for overseas delivery.
Individual companies may store oil in barrels, but the largest commercial oil
producers rarely do unless the product is going to be shipped to a remote
location, such as a military base or third world countries without storage
facilities. It is far more likely to see a derivative of crude oil, such as gasoline
or kerosene, actually stored in steel drums or barrels.
Therefore, the reason we measure oil in barrels is mostly to provide a familiar

reference for those who grew up with images of actual oil-filled barrels rolling
down a conveyor belt. In reality, only a percentage of a barrel of oil is
converted to gasoline or petrol, so a number such as 1,000,000 barrels of
crude oil does not necessarily translate to a surplus supply of gasoline. It only
refers to the number of gallons of raw crude produced that day, not how much
has been refined into various petroleum products.
4.1k Oil field
A region of land in which vast amounts of oil is extracted from the ground is
known as an oil field. The area generally contains oil wells, large machines
that bore into the earth to extract petroleum or crude oil. Oil reservoirs, pools
of hydrocarbons found in rock formations under the ground, are usually
located on large swaths of land, making it necessary for the oil field to extend
over a large area. The petroleum is naturally trapped by rock and soil into
large pools, which make it possible to set up numerous oil wells in order to
permeate the surface.
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Logistically, oil fields are complicated to set up and represent one of the most
advanced exercises in human technology in the 21st century. Oil fields are
generally remote and situated far from civilization. This is due to the fact that
crude oil is found most readily in desert areas or underneath the ocean floor.
The oil field rig, the machinery which pumps the oil from the wells, is large and
requires extensive manufacturing. Moving the equipment from the location of
construction to the oil field can be quite a task. Trucking, shipping and aerial
transportation are all utilized to bring the materials to the site. Once on
location, the machine must be assembled and a well must be dug. This
process from identification of a location to the actual production of oil can take
years.
One of the major components that make oil fields function are the human
workers that construct the rigs and general machinery designed to gather
petroleum. Employees of the companies that operate the fields generally stay
on site for months at a time due to transportation limitations. In addition,
housing requires electricity, water, heat and other resources. Since the oil
fields are distant from civilization, self-sufficient communities are created
within the oil field.
Along with oil, most oil fields are also flush with excessive levels of natural
gas. This gas needs to be burned off in order to prevent explosion or
unwanted fires. Natural gas works very efficiently to power the facilities of the
community. It can be pumped all over the vast field and used to make
electricity and heat furnaces.
Oil fields are scattered across the globe in many diverse regions. Some are
situated in hot deserts such as those in Texas and frigid climates as in Alaska.
The largest fields in the world are located in the Middle East, most notably
Ghawar Field in Saudi Arabia and Burgan Field in Kuwait. Billions of barrels of
oil are produced each year from these fields.
4.1l Oil Export
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The oil is processed to yield a variety of products to meet demand for
everything from gasoline to bunker fuel. Major exporters of oil include Saudi
Arabia, Russia, Norway, Iran, and Venezuela. Importers typically establish
branch offices in these nations or develop relationships with companies in
these nations to facilitate trade of oil.
 Oil import and export is a very lucrative business, but requires a

substantial investment by an individual in terms of finance and overall
knowledge. The process to become an oil importer is intensive and requires a
deep understanding of the oil market and the political and economic factors
that affect it along with the financial capabilities to take advantage of market
trends.
4.1m How is crude oil converted to gasoline?
Crude oil is converted to gasoline through a relatively simple refining process.

The transformation of oil to gasoline begins with its extraction from the
ground, after which it is usually loaded into large container ships that deliver
the crude oil to refineries all over the world. As any viewer of news footage
has seen, crude oil emerges as a thick black substance, which does not
resemble the clear and free-flowing gasoline used in motor vehicles.
This is because crude oil is actually a mixture of hydrocarbons. As the

prehistoric plants and animals that comprise crude oil broke down, they
formed hydrocarbons consisting of variously sized chains and structures.
Each hydrocarbon has a unique application, which the refinery process aims
to maximize.
The use for each hydrocarbon depends on the number of carbon atoms in its
structure. Gasoline, for example, has eight carbons, while light gases like
propane have only three. Hydrocarbons have a lot of energy, when they can
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be disentangled from other types of hydrocarbon, and the refining process
accomplishes this.
The most important part of the refining process is known as fractional

distillation. Because the hydrocarbons all have different boiling points, they
can be separated by heating. The crude oil is heated in a boiler to
temperatures up to 1112° Fahrenheit (600° Celsius). This process coverts all
the hydrocarbons into a vapor. As they cool to their boiling points, they
precipitate out as liquids.
The vapor is routed through a distillation column. At the bottom, the

hydrocarbons with the highest boiling point are caught first, on a screen that
pulls out the residual, or coke, often flashed or burned for energy. The vapor
moves up the column, and as it cools, various hydrocarbons are caught on
screens along the way, such as diesel, kerosene, gasoline, naphtha, and the
light gases.
All of these outputs must be treated for impurities before they can be shipped.
A sulfuric acid column removes particles, unsaturated hydrocarbons, oxygen
compounds, and nitrogen compounds. Then, the liquid is passed through an
absorption column that removes water. Finally, it is treated to remove sulfur.
After this process, the various crude products can be shipped to their end
destinations through a large network.
Gasoline comprises almost half the output of a barrel of crude oil. However,
the hydrocarbon chains that make gasoline do not comprise half a barrel. This
difference is resolved through chemical refining, which allows refineries to
build up or break down hydrocarbon chains to get different products.
Chemical refining outputs are changed depending upon the demand, which is
frequently most heavy for gasoline.
When hydrocarbons are broken down into small components, it is called

cracking. Cracking can be accomplished by introducing heat to the
hydrocarbons or by using a chemical catalyst like hydrogen gas. When
hydrocarbons are combined to form longer chains, it is known as unification.
67
Unification most commonly uses platinum as a catalyst to combine small
carbon chains, producing hydrogen gas as a byproduct. The hydrogen gas
can be used for cracking or sold. Hydrocarbons are also chemically altered in
a a process called alkylation, which combines compounds of a low molecular
weight with a catalyst and introduces the mixture to the hydrocarbons being
altered.
The process whereby crude oil is turned into gasoline is carried on at high
volume all over the world. Most refineries are extremely efficient, using every
hydrocarbon chain separated during the distillation process and tweaking the
output as needed to adjust for market demands. However, the supply of crude
oil is known to be limited, raising questions about the longevity of the future of
refining. In addition, most of the world is heavily dependent upon oil from one
highly unstable source: the Middle East.
4.1n Tips for the oil and gas investors
Stock market investors sometimes focus on a particular industry, such as

energy. For those investors who are interested in investing in oil and gas
stocks, there are certain expectations that should be understood. Oil and gas
investors often must be patient, because stocks in this industry tend to be
volatile — that is, they exhibit dramatic price swings based on the supply and
demand of these resources. Ideally, this group of investors should hunt for
opportunities when oil and gas prices are pulling back but show signs of future
recovery. This search might require the guidance of an investment
professional.
Oil and gas investors should also keep pace with the current regulating of oil
and gas production in the region in which they plan to invest. For instance, a
country might place a hold on oil and gas drilling for some reason, such as
impending danger of an oil spill. In this scenario, an oil services company that
drills for the natural resource will probably see its stock price decline because
68
of the interrupted profits. A lull in drilling activity could present an opportunity
for investors to enter into this sector at low prices or, for short-term investors
who are looking to reap quick profits, it might be a signal to remain sidelined
for the time being.
There are different ways for oil and gas investors to allocate money to energy.
Stock picking represents one way, and through this course, the investor
should research individual stocks at length. The main areas of interest should
be price history, profitability and revenue growth over the past three months,
six months and one year’s time at the very least.
Another way is via investing in an oil and gas mutual fund. There are mutual
funds dedicated exclusively to the energy industry. These funds might focus
on a particular segment of energy, such as oil and gas drilling or solely on oil
and gas conglomerate companies. Oil and gas investors who decide to invest
with a mutual fund will gain exposure to multiple stocks in the industry without
having to gain expertise on every individual holding but rather the mutual fund
firm as a whole.
One thing for oil and gas investors to keep in mind is that the price of crude oil
and natural gas weighs heavily on the direction of trading in many energy
stocks. As a result, when energy prices are peaking, this typically bodes well
for oil and gas stocks. Conversely, when these securities are going through a
downturn, it reflects lesser demand, and as a result, oil and gas stock prices
tend to decline during this period.
4.1o Different types of oil investments
Oil investments vary greatly in terms of the types of oil products and
companies involved and the types of investments available to the individual.
Investors must decide what type of oil product or company in which they wish
to be involved. Once that is decided, they must decide whether they wish to
simply buy stock in oil companies or directly invest via private equity or
69
venture capital. Other oil investments come in the form of futures contracts, in
which investors speculate on the movement of oil prices.
The impact of the oil industry on the world is far-reaching, not just in terms of
the commodity’s practical uses for energy but in terms of the way that
countries with vast oil reserves often wield wealth and political power because
of it. Oil investments can concentrate on the many types of oil, from the crude
oil that is used to make all types of fuel products to the specific products
themselves. There are also many different types of drilling operations and
refineries that are available to investors.
If an investor has decided on the sector of the oil market he wishes to pursue,
he then must decide which type of investment he wishes to make. For stock
market investors, oil investments often come in the form of oil company stocks
being bought and sold. Mutual funds, which take investments from multiple
investors and spread the capital within among many different securities, are
practical opportunities for those who wish to diversify their oil portfolios. The
main benefit of a mutual fund is that it usually can’t be brought down by one or
even a few under-performing securities.
Investors with significant wealth may wish to bypass the public sector and
invest in private oil companies directly with an eye toward gaining equity and
maybe even decision-making clout in those companies. Oil investments of this
type include private equity and venture capital. Private equity occurs when an
individual or group invests in a middle-market company in need of capital and
benefits later on if the company is resold or goes public. Venture capital is a
similar process, with the difference being that the investments usually go to
start-up companies.
Another way for individuals to make oil investments is through the futures
market. An investor who buys oil futures enters into a contract to either buy or
sell oil at some point in the future. If the investor can anticipate the way that
the price of oil is going to move, she can benefit from the discrepancy
between the price of the options contract and the future price of oil.
70
CHAPTER 5
KEY FINDINGS AND INFERENCES
5.1 PETROLEUM BY COUNTRY
Consumption statistics
oil consumption by
Global fossil carbon World energy percentage of total
emissions, an consumption, per region from
daily oil
indicator of 1980–2030. 1980 to 2006:
consumption from
consumption, for Source: red=USA,
1980 to 2006
1800–2007. Total is International blue=Europe,
black, Oil is in blue. Energy Outlook yellow=Asia+Ocea
2006. nia
Figure 2.1
71
5.1a Consumption
Figure 2.2
Oil consumption per capita (darker colors represent more consumption).This table
orders in the next page shows the amount of petroleum consumed in 2008 in
thousand barrels (bbl) per day and in thousand cubic metres (m3) per day:
Consuming (1000 (1000 population in bbl/year per

Nation 2008 bbl/day) m3/day) millions capita
United States 1 19,497.95 3,099.9 314 22.6
China 7,831.00 1,245.0 1345 2.1
Japan 2 4,784.85 760.7 127 13.7
India 2 2,962.00 470.9 1198 0.9
Russia 1 2,916.00 463.6 140 7.6
Germany 2 2,569.28 408.5 82 11.4
Brazil 2,485.00 395.1 193 4.7
Saudi Arabia
2,376.00 377.8 25 33.7
(OPEC)
Canada 2,261.36 359.5 33 24.6
South Korea 2 2,174.91 345.8 48 16.4
Mexico 1 2,128.46 338.4 109 7.1
France 2 1,986.26 315.8 62 11.6
Iran (OPEC) 1,741.00 276.8 74 8.6
United Kingdom 1 1,709.66 271.8 61 10.1
Italy 2 1,639.01 260.6 60 10
Table 2.1
Source: US Energy Information Administration
Population Data:
1
peak production of oil already passed in this state
2
This country is not a major oil producOil producing countries
72
Figure 1.3
Graph of Top Oil Producing Countries 1960–2006, including Soviet Union
In petroleum industry parlance, production refers to the quantity of crude extracted

from reserves, not the literal creation of the product.
# Producing 103bbl/d 103bbl/d 103bbl/d 103bbl/d 103bbl/d Present

Nation (2006) (2007) (2008) (2009) (2010) Share
Saudi Arabia
1 10,665 10,234 10,782
(OPEC)
2 Russia 1 9,677 9,876 9,789
1
3 United States 8,331 8,481 8,514
4 Iran (OPEC) 4,148 4,043 4,174
5 China 3,845 3,901 3,973
2
6 Canada 3,288 3,358 3,350
7 Mexico 1 3,707 3,501 3,185
United Arab
8 Emirates 2,945 2,948 3,046
(OPEC)
9 Kuwait (OPEC) 2,675 2,613 2,742
Venezuela
10 2,803 2,667 2,643
(OPEC) 1
11 Norway 1 2,786 2,565 2,466
12 Brazil 2,166 2,279 2,401
3
13 Iraq (OPEC) 2,008 2,094 2,385
14 Algeria (OPEC) 2,122 2,173 2,179
15 Nigeria (OPEC) 2,443 2,352 2,169
16 Angola (OPEC) 1,435 1,769 2,014
17 Libya (OPEC) 1,809 1,845 1,875
18 United Kingdom 1,689 1,690 1,584
19 Kazakhstan 1,388 1,445 1,429
20 Qatar (OPEC) 1,141 1,136 1,207
21 Indonesia 1,102 1,044 1,051
73
22 India 854 881 884
23 Azerbaijan 648 850 875
24 Argentina 802 791 792
25 Oman 743 714 761
26 Malaysia 729 703 727
27 Egypt 667 664 631
28 Colombia 544 543 601
29 Australia 552 595 586
Ecuador
30 536 512 505
(OPEC)
31 Sudan 380 466 480
32 Syria 449 446 426
33 Equatorial
386 400 359
Guinea
34 Thailand 334 349 361
35 Vietnam 362 352 314
36 Yemen 377 361 300
37 Denmark 344 314 289
38 Gabon 237 244 248
39 South Africa 204 199 195
40 Turkmenistan No data 180 189
Table 2.2
Source: U.S. Energy Information Administration

1
Peak production of conventional oil already passed in this state
2
Although Canadian conventional oil production is declining, total oil
production is increasing as oil sands production grows. If oil sands are
included, it has the world's second largest oil reserves after Saudi Arabia.
3
Though still a member, Iraq has not been included in production figures
since 1998.
5.1b Export
See also: Fossil fuel exporters
74
Figure 2.4
Oil exports by country.
In order of net exports in 2006 in thousand bbl/d and thousand m³/d:
# Exporting Nation (2006) (103bbl/d) (103m3/d)

1 Saudi Arabia (OPEC) 8,651 1,376
1
2 Russia 6,565 1,044
1
3 Norway 2,542 404
4 Iran (OPEC) 2,519 401
5 United Arab Emirates (OPEC) 2,515 400
1
6 Venezuela (OPEC) 2,203 350
7 Kuwait (OPEC) 2,150 342
8 Nigeria (OPEC) 2,146 341
9 Algeria (OPEC) 1 1,847 297
1
10 Mexico 1,676 266
1
11 Libya (OPEC) 1,525 242
12 Iraq (OPEC) 1,438 229
13 Angola (OPEC) 1,363 217
14 Kazakhstan 1,114 177
15 Canada 2 1,071 170
Table 2.3
75
Source: US Energy Information Administration
1
peak production already passed in this state
2
Canadian statistics are complicated by the fact it is both an importer and
exporter of crude oil, and refines large amounts of oil for the U.S. market. It is
the leading source of U.S. imports of oil and products, averaging 2,500,000
bbl/d (397,000 m3/d) in August 2007
Total world production/consumption (as of 2005) is approximately 84 million

barrels per day (13,400,000 m3/d).
See also: Organization of Petroleum Exporting Countries
5.1c Import
Figure 2.5
Oil imports by country.
In order of net imports in 2006 in thousand bbl/d and thousand m³/d:
Importing Nation (2006) (103bbl/day) (103m3/day)

1 United States 1 12,220 1,943
2 Japan 5,097 810
76
3 China 2 3,438 547
4 Germany 2,483 395
5 South Korea 2,150 342
6 France 1,893 301
7 India 1,687 268
8 Italy 1,558 248
9 Spain 1,555 247
10 Republic of China (Taiwan) 942 150
11 Netherlands 936 149
12 Singapore 787 125
13 Thailand 606 96
14 Turkey 576 92
15 Belgium 546 87
Table 2.4
Table 2.5 Crude Oil Imports (Top 15 Countries)(Thousand Barrels per Day)
Country Oct-10 Sep-10 YTD 2010 Oct-09 YTD 2009
CANADA 1,840 1,936 1,962 1,858 1,919

MEXICO 1,178 1,098 1,123 1,015 1,109
SAUDI ARABIA 1,114 1,082 1,077 938 1,005
VENEZUELA 887 919 924 879 985
NIGERIA 812 1,107 1,000 853 734
COLOMBIA 400 308 336 282 262
ANGOLA 311 404 399 437 471
ALGERIA 259 366 326 327 282
KUWAIT 215 172 205 104 171
ECUADOR 203 229 196 174 194
RUSSIA 182 236 278 159 243
BRAZIL 168 177 258 169 310
IRAQ 143 422 429 499 461
OMAN 107 0 11 0 36
GABON 101 71 51 31 68

Total Imports of Petroleum (Top 15 Countries)(Thousand Barrels per Day)
Country Oct-10 Sep-10 YTD 2010 Oct-09 YTD 2009
77
CANADA 2,345 2,475 2,516 2,367 2,447
MEXICO 1,345 1,256 1,263 1,136 1,223
SAUDI ARABIA 1,121 1,093 1,090 943 1,032
VENEZUELA 930 1,008 998 955 1,103
NIGERIA 872 1,174 1,037 869 770
RUSSIA 655 648 626 385 596
ALGERIA 451 543 503 491 497
COLOMBIA 422 363 366 292 285
ANGOLA 324 417 409 450 481
VIRGIN ISLANDS 270 302 263 215 283
KUWAIT 215 172 207 104 174
ECUADOR 203 229 198 180 198
BRAZIL 169 181 275 174 326
UNITED KINGDOM 152 178 265 278 255
IRAQ 143 422 429 499 462
Table 2.6
Note: The data in the tables above exclude oil imports into the U.S. territories.
5.1d Non-producing consumers
Countries whose oil production is 10% or less of their consumption.
# Consuming Nation (bbl/day) (m³/day)

1 Japan 5,578,000 886,831
2 Germany 2,677,000 425,609
3 South Korea 2,061,000 327,673
4 France 2,060,000 327,514
5 Italy 1,874,000 297,942
6 Spain 1,537,000 244,363
7 Netherlands 946,700 150,513
8 Turkey 575,011 91,663
Table 2.7
Source: CIA World Factbook[not in citation given]
COAL OIL CHART
78
Figure 2.6
79
Figure 2.7
3:27 AM EST - 2011.01.26
Crude oil
Figure 2.8
5.2 KEY FINDINGS
80
5.2a Some of the key findings are:
 “Peak oil is now”.

For quite some time, a hot debate is going on regarding peak oil. Institutions
closeto the energy industry, like CERA, are engaging in a campaign trying to
“debunk”the “peak oil theory”. This paper is one of many by authors inside
and outsideASPO (the Organisation for the Study of Peak Oil) showing that
peak oil isanything but a “theory”, it is real and we are witnessing it already.
According to the scenario projections, the peak of world oil production was in
2006.The timing of the peak in this study is by a few years earlier than seen
by otherauthors (like e.g. Campbell, ASPO, and Skrebowski) who are also
well aware ofthe imminent oil peak. One reason for the difference is a more
pessimistic assessment of the potential of future additions to oil production,
especially from offshore oil and from deep sea oil due to the observed delays
in announced field developments. Another reason are earlier and greater
declines projected for key producing regions, especially in the Middle East.
 The most important finding is the steep decline of the oil supply after
peak.This result - together with the timing of the peak - is obviously in sharp
contrast to the projections by the IEA. But the decline is also more
pronounced comparedwith the more moderate projections by ASPO.Yet, this
result conforms very well with the recent findings of Robelius in his doctoral
thesis. This is all the more remarkable because a different methodology and
different data sources have been used.
81
5.2b Abolish crude oil customs duty to avoid price hikes: oil cos
Press Trust of India/New Delhi 16 Jan 11 | 03:42 PM
Finding a Rs 5.50 per litre hike in petrol prices over the past one month
insufficient to cover their under-recoveries on fuel sales, oil marketing
companies have demanded the abolition of customs duty on crude oil to avoid
a further increase amid spiralling international rates.
Petrofed, an oil and gas industry body representing state-run firms like Indian
Oil Corp (IOC) and private sector players such as Reliance Industries, has
asked the government to reduce the customs or import duty on crude oil to
zero from 5 per cent at present.
It also wants the customs duty on diesel slashed to 2.5 per cent from 7.5 per
cent at present, along with a reduction in the specific duty imposed on the
most-consumed fuel in the country, a hike in prices of which would have
cascading effect on already high inflation.
State oil firms had yesterday announced a Rs 2.50-2.54 a litre hike in petrol
prices. The hike -- which was necessitated by a jump in international crude
prices to $98 per barrel -- came on back of Rs 2.94-2.96 a litre hike in petrol
prices last month. However, the firms have not raised diesel prices so far, as
the government still regulates the rates of the transport fuel.
"Eliminating the customs duty on crude and correspondingly reducing the duty
on finished products would reduce the under-recoveries (revenue loss on
selling fuel below cost) that are compensated by the government," Petrofed
said in a pre-Budget memorandum.
"Instead of collecting customs duty on crude and later refunding the same as
under-recovery compensation, the government may eliminate the duty on
crude as was done earlier," it said.
The average price of crude oil during 2008-09 was around $82 per barrel,
82
when the duty on crude oil was reduced to 0 per cent. The average price of
crude oil during 2010-11 has already crossed $82.4 per barrel and may
increase further.
The abolition of customs duty on crude oil "would reduce diesel under-
recovery by Rs 1.48 per litre," it said. "Although the gross impact of reduction
of crude duty would be Rs 15,880 crore, the net impact on the Budget would
be limited to Rs 5,212 crore after taking into account compensation for under-
recoveries of IOC, BPC and HPC by Rs 10,668 crore in a full year."
Reduction of under-recoveries will improve the valuation of Oil and Natural

Gas Corp (ONGC) and IOC prior to their follow-on public offering (FPOs).
"Since reduction in duties would offset the subsidies that government has to
provide on diesel, deregulation of diesel will also be feasible," Petrofed said.
State fuel retailers currently lose over Rs 7 on the sale of every litre of diesel.
Petrofed has also demanded the abolition of the National Calamity Contingent
Duty of Rs 50 per tonne imposed on imported crude oil as it is "a stranded
cost for manufacturers."
"Levy of NCCD was introduced from 2003-04. Refineries have been paying
Rs 50 per tonne as NCCD on import of crude oil. Further, education cess and
secondary and high education cess is also payable on the NCCD," it add
83
CHAPTER 6
6.1 FUTURE OF CRUDE OIL PRODUCTION INDUSTRY
Consumption in the twentieth century has been abundantly pushed by

automobile growth; the 1985-2003 oil glut even fuelled the sales of low
economy vehicles (SUVs) in OECD countries. In 2008, the economic crisis
seems to have some impact on the sales of such vehicles; still, the 2008 oil
consumption shows a small increase. The BRIC countries might also kick in,
as China briefly was the first automobile market in December 2009. The
immediate outlook still hints upwards. In the long term, uncertainties linger;
the OPEC believes that the OECD countries will push low consumption
policies at some point in the future; when that happens, it will definitely curb
the oil sales, and both OPEC and EIA kept lowering their 2020 consumption
estimates during the past 5 years. Oil products are more and more in
competition with alternative sources, mainly coal and natural gas, both
cheaper sources.
Production will also face an increasingly complex situation; while OPEC

countries still have large reserves at low production prices, newly found
reservoirs often lead to higher prices; offshore giants such as Tupi, Guara and
Tiber demand high investments and ever-increasing technological abilities.
Subsalt reservoirs such as Tupi were unknown in the twentieth century,
mainly because the industry was unable to probe them. Enhanced Oil
Recovery (EOR) techniques (example: DaQing, China) will continue to play a
major role in increasing the world's recoverable oil.
84
CHAPTER 7
7.1 RECOMMENDATIONS AND CONCLUSIONS
Yes, oil consumers need steady supplies of oil, and oil producers rely on
steady demand. If demand changed suddenly it would have a major impact on
the profitability of oil producers and the economies of many countries around
the world.
Oil production is a long-term affair: the oil industry works 24 hours a day, 365
days a year, excluding maintenance or bad weather and other disruptions. Oil
facilities require many millions of dollars of investment, and the investors try to
earn a reasonable return on their capital.
A downturn in oil demand could force oil production to slow down or stop. This
could physically damage the oil fields, reducing the amount of oil that can be
recovered in future. The oil installations could also be damaged. Some
facilities, such as those operating in the oceans, are very difficult and
expensive to shut down.
When production slows down, oil producers might be forced to lay off staff.
Downstream operators, such as gasoline retailers, refiners and transport
companies, could also be forced to shed staff.
If oil producers receive lower incomes they must spend less money and
import fewer goods from oil consumers. If investors are unsure about the risks
and the likely returns from petroleum investments they may not make those
investments. If we do not invest enough money, or do it far enough in
advance, then the world could face a shortage of oil supplies and a downward
spiral in the global economy. However, if oil producers continue to receive
reasonable prices and stable demand, they will maintain their production and
invest far enough in advance to meet the growth of demand.
85
Thus the security of oil supplies relies upon the security of oil demand. Oil
producers - and oil consumers - need to work together to ensure that the
security of oil supply and demand is preserved.
The impact of the oil industry as well as crude oil industry on the world is far-
reaching, not just in terms of the commodity’s practical uses for energy but in
terms of the way that countries with vast oil reserves often wield wealth and
political power because of it. Oil investments can concentrate on the many
types of oil, from the crude oil that is used to make all types of fuel products to
the specific products themselves. There are also many different types of
drilling operations and refineries that are available to investors.
If an investor has decided on the sector of the oil market he wishes to pursue,
he then must decide which type of investment he wishes to make. For stock
market investors, oil investments often come in the form of oil company stocks
being bought and sold. Mutual funds, which take investments from multiple
investors and spread the capital within among many different securities, are
practical opportunities for those who wish to diversify their oil portfolios. The
main benefit of a mutual fund is that it usually can’t be brought down by one or
even a few under-performing securities.
Investors with significant wealth may wish to bypass the public sector and
invest in private oil companies directly with an eye toward gaining equity and
maybe even decision-making clout in those companies. Oil investments of this
type include private equity and venture capital. Private equity occurs when an
individual or group invests in a middle-market company in need of capital and
benefits later on if the company is resold or goes public. Venture capital is a
similar process, with the difference being that the investments usually go to
start-up companies.
Crude Oil Investors should also keep pace with the current regulating of oil
and gas production in the region in which they plan to invest. For instance, a
country might place a hold on oil and gas drilling for some reason, such as
86
impending danger of an oil spill. In this scenario, an oil services company that
drills for the natural resource will probably see its stock price decline because
of the interrupted profits. A lull in drilling activity could present an opportunity
for investors to enter into this sector at low prices or, for short-term investors
who are looking to reap quick profits, it might be a signal to remain sidelined
for the time being.
There are different ways for crude oil and natural gas investors to allocate
money to energy. Stock picking represents one way, and through this course,
the investor should research individual stocks at length. The main areas of
interest should be price history, profitability and revenue growth over the past
three months, six months and one year’s time at the very least.
Another way is via investing in an oil and gas mutual fund. There are mutual
funds dedicated exclusively to the energy industry. These funds might focus
on a particular segment of energy, such as oil and gas drilling or solely on oil
and gas conglomerate companies. Oil and gas investors who decide to invest
with a mutual fund will gain exposure to multiple stocks in the industry without
having to gain expertise on every individual holding but rather the mutual fund
firm as a whole.
One thing for oil and gas investors to keep in mind is that the price of crude oil
and natural gas weighs heavily on the direction of trading in many energy
stocks. As a result, when energy prices are peaking, this typically bodes well
for oil and gas stocks. Conversely, when these securities are going through a
downturn, it reflects lesser demand, and as a result, oil and gas stock prices
tend to decline during this period.
87
REFERENCES
 Wikepedia
 WiseGeek.com
 Akiner, Shirin; Aldis, Anne, ed (2004). The Caspian: Politics,

Energy and Security. New York: Routledge. ISBN 978-0-7007-
0501-6.
 Bauer Georg, Bandy Mark Chance (tr.), Bandy Jean A.(tr.)

(1546). De Natura Fossilium. translated 1955
 Hyne, Norman J. (2001). Nontechnical Guide to Petroleum

Geology, Exploration, Drilling, and Production. PennWell
Corporation. ISBN 087814823X.
 Mabro, Robert; Organization of Petroleum Exporting Countries

(2006). Oil in the 21st century: issues, challenges and
opportunities. Oxford Press. ISBN 0199207380,
9780199207381.
 Maugeri, Leonardo (2005). The Age of Oil: What They Don't

Want You to Know About the World's Most Controversial
Resource. Guilford, CT: Globe Pequot. p. 15. ISBN 978-1-
59921-118-3. http://books.google.com/?id=mzHt5hYeXlIC.
 Speight, James G. (1999). The Chemistry and Technology of

Petroleum. Marcel Dekker. ISBN 0824702174.
88
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CHAPTER 1

HISTORY OF CRUDE OIL

Petroleum (L. petroleum, from Greek petra (rock) or

The term petroleum was first used in the treatise De

Oil has also been dominated by a few individuals,

2.DEFINITION OF OIL AND CRUDE OIL

A group of liquid hydrocarbons of fossil origins comprising Crude (that

Remark: Functionally similar liquid hydrocarbons and organic chemicals from

2.1b Crude oil definition:

Definition: A mineral oil of fossil origin extracted from underground reservoirs

The proportion of light hydrocarbons in the petroleum mixture varies greatly

Four different types of hydrocarbon molecules appear in crude oil. The

Crude oil varies greatly in appearance depending on its composition. It is

At a constant volume the heat of combustion of a petroleum product can be

where Qv is measured in cal/gram and d is the specific gravity at 60 °F

2.3a Thermal conductivity

The thermal conductivity of petroleum based liquids can be modeled as

where K is measured in BTU · hr−1ft−2 , t is measured in °F and d is the

2.3b Specific heat

The specific heat of a petroleum oils can be modeled as follows:

where c is measured in BTU/lbm-°F, t is the temperature in Fahrenheit and d

In units of kcal/(kg·°C), the formula is:

where the temperature t is in Celsius and d is the specific gravity at 15 °C.

2.3c Latent heat of vaporization

The latent heat of vaporization can be modeled under atmospheric conditions

where L is measured in BTU/lbm, t is measured in °F and d is the specific

In units of kcal/kg, the formula is:

where the temperature t is in Celsius and d is the specific gravity at 15 °C.

2.3d Formation of crude oil

According to generally accepted theory, petroleum is derived from ancient

2.4 CLASSIFICATION OF CRUDE OIL

There are different types of Crude oil namely:

 LIGHT SWEET CRUDE OIL

National governments of oil producing nations constitute “Really Big Oil”,

2.5 CRUDE OIL RESERVOIRS

 Crude Oil Price

3.1 CRUDE OIL PRICE : After the collapse of the OPEC-administered

HISTORY OF ILLINOIS BASIN POSTED CRUDE OIL PRICES

History & Analysis of Crude Oil Prices from WTRG Economics

Year, Month, Monthly Average, and Yearly Average

January $69.85 July $67.91

January $33.07 July $56.16

January $84.70 July $126.16

January $46.53 July $65.96

January $58.30 July $66.28

January $42.21 July $52.13

January $30.87 July $36.25

January $29.44 July $27.39

January $16.65 July $23.69

January $28.66 July $23.58

January $24.11 July $27.17

January $9.86 July $17.43

February $13.71 August $10.20

January $23.52 July $17.57

January $17.33 July $19.73

January $16.50 July $15.50

January $13.29 July $18.26