Sometimes mythic, often controversial, crude oil has been an important component of our modern times. Crude oil comes in many colors and consistencies, from hydrocarbon rich reservoirs in Texas to the heavy oil sands of Canada and Venezuela. Usually named for their region of production as well as other factors, crude oil properties can include various elements including carbon, nitrogen, oxygen, sulfur, and metals. Due to international appeal and demand, there are different tradable crude oil contracts across the globe, but for our purposes we will focus on the NYMEX Light, Sweet crude oil contract, so named for its low sulfur content.
1,000 US barrels or 42,000 gallons.
Dollars and cents per barrel; minimum tick size is one cent per barrel or $10.00 per contract.
All months.
Open outcry on NYMEX runs from 9:00 am to 2:30 pm ET. Electronic trading on Globex runs Sunday through Friday 6:00 pm until 5:15 pm with a 45 minute break each day.
$10.00 per barrel or $10,000 per contract. If any contract is traded, bid, or offered at the limit for five minutes, trading is halted for five minutes. When trading resumes, the limit is expanded by $10.00 per barrel in either direction. If another halt were triggered, the market would continue to be expanded by $10.00 per barrel in either direction after each successive five-minute trading halt. There will be no maximum price fluctuation limits during any one trading session.
Crude oil is not limited to modern uses as history shows examples of petroleum products being applied for nearly four thousand years. However, there is no doubt that the volume of consumption and the variety of applications for crude oil exploded in the middle of the nineteenth century. First driven by the demand for kerosene and oil lamps, the introduction of the internal combustion engine sealed our fate and ushered in the era of oil booms across the United States. As oil quickly overtook coal as the world's leading fuel, it was only a matter of time before reservoirs began to be outpaced by demand and the first "energy crisis" hit in the 1970's. In the 1980's, increased production and lower demand led to an "oil glut".
US imports in the last three decades are illustrated as follows:
**Data Courtesy of EIA
The most well known deposits of petroleum are porous rock formations in which the hydrocarbons that make up the oil are sealed within the rock by an impermeable rock above. These reservoirs are accessed by drilling and pumping. Unconventional oil deposits of heavy crude oil exist in oil sands or oil shales which contain migrating oil or trapped hydrocarbons. Heavier crude oil deposits are often more expensive or require a more intensive process to extract the oil. Most geologists attribute the formation of oil to the compression and heating of organic materials over extremely long periods of geologic time. However, there is an alternate theory that suggests natural petroleum was formed from deposits which may date to the formation of the earth rather than biological origins.
World crude oil supply and demand stats are highlighted in the following:
|
|
||||||||||||||||||||||||||||||||||||||||||||
| 2008 Top World Oil Net Importers | thousand Barrels per Day | 2008 Top World Oil Net Exporters | thousand Barrels per Day |
|---|---|---|---|
| United States | 12,224 | Saudi Arabia | 8,030 |
| Japan | 4,903 | Russia | 7,017 |
| China | 3,670 | United Arab Emirates | 2,475 |
| Germany | 2,325 | Iran | 2,342 |
| South Korea | 2,210 | Noway | 2,338 |
| India | 1964 | Kuwait | 2,288 |
| France | 1,897 | Nigeria | 2,062 |
| Spain | 1,583 | Venezuala | 1,957 |
| Italy | 1,519 | Algeria | 1,905 |
| Taiwan | 950 | Algola | 1,709 |
Crack Spread - Based on the word cracking which is the word for breaking down crude oil into products at a refinery. A crack spread is a term used when referring to the price difference between crude oil and extracted products like gasoline or heating oil.
Light, sweet or sour crude oil - Oil comes in various colors and viscosities. Light, sweet crude oil has less sulfur and is lighter than sour crude oil. Light, sweet crude oil is usually in higher demand for refining into gasoline, kerosene and diesel.
Oil sands or tar sands - are semi-solids of crude oil, sand, and water. Usually sticky, sands need to be extracted in unconventional ways since they do not flow like those deposits used with well methods. Big deposits include Athabasca oil sands in Canada and Orinoco oil sands in Venezuela.
A geologist working for Shell Oil in the middle part of the last century is widely recognized as the first person to predict an oil peak. M. King Hubbert noted that oil discoveries tended over time to form a bell shaped curve. He suggested that oil production over time would follow a similar path with production in the lower 48 states peaking between 1965 and 1970. Hubbert went on to predict global oil production would peak in the last five years of the 20th century.
Using his predictive curve, it appears as though 54 of the largest oil producing nations have already passed their peak of production and are in decline. However, controversy surrounds the theory since many regions lack transparency in accounting for oil reserves. Conclusions vary from intimating that the global peak has already passed to the optimistic notion that the peak will come in 2035. Fossil fuels are defined as finite and since supply can be a major factor when considering pricing - if not the most important - the implications of the theory are boundless.
The Organization of Petroleum Exporting Countries (OPEC) is a group of thirteen oil producing nations: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Created in 1960 and with current headquarters in Vienna, the stated objective of OPEC is to coordinate and unify member petroleum policies to secure fair and stable prices. Actions, statements, and policy changes from member nations can have an immediate impact on the price of oil and meetings are usually foreshadowed by media and trader speculation.
Disputes and conflicts in any producing nation will naturally have an effect on oil prices. The Gulf War and the War on Terror are probable examples as they centered on top producing regions of the world. Smaller - though no less grave - incursions in or around oil pipes, oil pumps, and oil refineries in areas of Asia and Africa can also affect production, distribution, and price.
Controversy surrounds petroleum products and is rooted in the potential harmful effects to the environment and atmosphere. The late 20th and early 21st centuries have focused on producing alternative fuels and engines. They have also seen significant environmental issues ranging from oil spills to the impact of drilling in preserved areas. Alternately and perhaps ironically the effect of the environment on oil production is a key area for concern especially during the Gulf hurricane season when offshore platforms become natural targets and production is pared back or halted completely. The same effect can be felt during winter storms in the North Sea.
Crude oil is normally taken to refineries for the hydrocarbon chemicals to be distilled into the common products we are all familiar with or to be mixed with chemicals to create other products including:
