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Crude Oil Price BARREL OF CRUDE OIL: One barrel contains 42 U.S. gallons of crude oil. What is Crude Oil? Crude Oil Benchmark Blends: Crude oil is priced in terms of regional blends, each with different characteristics. Of these, certain blends are followed by traders, as they most reflect the overall value of oil, and therefore affect the way different blends are priced. These are essentially like a Consumer Price Index for different types of oil. There are about 161 different types of crude that are traded around the world; the four primary benchmarks, of which these are priced internationally, are Brent Crude, West Texas Intermediate, Dubai, and the OPEC Basket. Brent Blend: Based on the prices of Brent crude, which is a light, sweet crude, from 15 different oil fields in the North Sea. West Texas Intermediate (WTI): The benchmark for oil prices in the US based on light, low sulfur WTI crude. WTI remains the benchmark for oil prices in the US despite the fact that its production has been falling for years. Dubai: Dubai crude, from Dubai, is a benchmark for Persian Gulf crude, and is light yet sour. OPEC Basket: The OPEC crude basket is OPEC's benchmark, and is made up of 13 different regional oils: Algeria's Saharan Blend, Angola's Girassol, Ecuador's Oriente, Indonesia's Minas, Iran's Iran Heavy, Iraq's Basra Light, Kuwait's Kuwait Export, Libya's Es Sider, Nigeria's Bonny Light, Qatar's Qatar Marine, Saudi Arabia's Arab Light, the United Arab Emirates' Murban, and Venezuela's BCF 17. Crude Oil Price, Current Oil Price: References to Oil prices are usually references to the spot price of either WTI/Light Crude oil as traded on the New York Mercantile Exchange (NYMEX), or the price of Brent oil as traded on the Intercontinental Exchange (ICE, which the International Petroleum Exchange has been incorporated into) Individuals can now trade crude oil through online trading sites, or with their banks through structured products indexed on the Commodities markets. Light
Crude Oil vs Heavy Crude Oil Heavy crude has high density, making it more difficult to transport and refine. Heavy crude is cheaper to buy and usually cheaper to extract, though heavy crude produced from tar sands can cost twice as much as conventional drilling. Heavy crude oil is typically defined as having a specific gravity greater than .933; however the distinction is often more functional than empirical, with any crude being labeled "heavy" that does not flow as well as its light counterpart. Sweet
Crude Oil vs Sour Crude Oil Sour crude has a sulfur content above 0.5% by weight, making it more expensive to refine, and therefore worth less per barrel. While sweet crude is generally the crude oil refined into gasoline, some refining companies, notably Valero Energy (VLO), have developed refining processes that allow them to refine more challenging, but cheaper, higher-sulfur petroleum. Reserve
booking The U.S. Securities and Exchange Commission rejects the probability concept and prohibits companies from mentioning probable and possible reserves in their filings. Thus, official estimates of proven reserves will always be understated compared to what oil companies think actually exists. For practical purposes companies will use proven plus probable estimate (2P), and for long term planning they will be looking primarily at possible reserves. Spot oil Prices
versus Futures oil Prices Moreover, there really is no "true" spot market for oil, in the sense of that there is a "true" spot market for stock or other financial assets.[citation needed] A "true" spot market requires, as described above, the actual physical transfer of the goods, to the purchaser, directly at the time of purchase, and there simply are no large scale sellers of crude oil, that operate in such a fashion. The "spot" prices that are quoted, involve the transfer of 1000 barrels of crude oil, not one or two.[citation needed] That would require literally 5 of 6 tractor-trailer rigs to carry off back to your house: the transportation costs would approach the value of the oil itself.[citation needed] When one speaks of a "spot" price for crude oil, one is meaning the current trading price, of the next future contract that will come due. Those that claim that futures prices (and, therefore, speculation) do not affect spot prices argue that people who purchase futures contracts do not actually purchase any real oil. When a fund purchases a futures contract and that contract comes due, it must sell the oil to someone who will actually use it, because that fund has no way of actually keeping the physical product. This means the oil must come to market - no matter what the price. If a firm buys a $150/barrel futures contract in June for July and the spot price in July is $140, the firm must buy the oil at $150, and then it MUST sell the oil at $140 as well, because it can't actually hold the oil. This means there is no accumulation of oil - firms can't hoard oil, so they can't actually affect the present market. Therefore, it is argued, the prices of futures contracts have no affect on spot prices. Those that believe futures speculation has an effect on spot prices (at least, those with a sound understanding of economics) argue that when oil futures are traded, oil purchasers, like refiners, try to buy oil at prices that will benefit their margins in both the short and long term. If it is believed that oil prices will rise in the future (indicated by futures prices being higher than present prices), purchasers will want to stock up on oil at lower prices today and put it in inventory; this drives up demand for crude in the present, forcing oil prices up in the present. Thus, it is argued, high prices for oil futures leads to high prices for oil in the present. Definition
of oil reserves Proven reserves - defined as oil and gas "Reasonably Certain" to be producible using current technology at current prices, with current commercial terms and government consent- also known in the industry as 1P. Some Industry specialists refer to this as P90 - i.e. having a 90% certainty of being produced. Probable reserves - defined as oil and gas "Reasonably Probable" of being produced using current or likely technology at current prices, with current commercial terms and government consent - Some Industry specialists refer to this as P50 - i.e. having a 50% certainty of being produced. - This is also known in the industry as 2P or Proven plus probable. Possible reserves - i.e. "having a chance of being developed under favorable circumstances" - Some industry specialists refer to this as P10 - i.e. having a 10% certainty of being produced. - This is also known in the industry as 3P or Proven plus probable plus possible. Types of Crude
Oils For example, many types of crude oil are more suited to various methods of refinement into other products. Different grades of crude oil cost much less to refine into other products than others. Brent Blend is one of the main types of crude oil found in the rich oil fields of the North Sea. This crude oil is often used as a price and quality benchmark for other grades of crude oil found in other areas of the world. A fairly light version of crude oil, Brent Blend is not as light as West Texas Intermediate, another major grade of crude oil found in deposits off the coast of Texas and Mexico. Some of the other classifications of Brent Blend include Brent Crude, Brent Sweet Light Crude, Oseburg and Forties. Brent Blend is ideal for the production of gasoline due to its low sulpher content. West Texas Intermediate is also one of the benchmarks used to help grade quality and thus, the output price per barrel. When the price per barrel is quoted in market reports, it is generally this grade of crude oil that is used as reference - along with Brent Blend prices. A very light grade of crude, this classification is even lighter in sulphur content than the Brent Blend, making it even more suited for refinement into other oil and gas products. The grade of crude oil termed OPEC Basket refers to oil found in Saudi Arabia, Qatar, Libya and other Eastern and world nations that make up OPEC (Oil Producing and Exporting Cartel). This classification of crude oil has many sub-grades including Arab Light (Saudi Arabia), Fateh (Dubai), Bonny Light (Nigeria), Minas (Indonesia), Saharan Blend (Algeria) and Tijuana Light (Venezuela). OPEC tries to control the world price of oil by manipulating production levels. When there's too much oil in the world reserves, OPEC cuts back their own production levels to maintain a good selling price. This grade of crude oil is a heavier blend of crude than Brent Blend or West Texas Intermediate. |
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