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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 termpetroleum 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 1862c. 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 newdiscoveries 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. A fter refining, the

kerosene was marketed nation-wide.


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Rockefeller reasoned that the way to control the oil industry was within the

transportation and refining section. In particular, refineries were comparatively

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 refine ry 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 1879Standard Oil controlled 90% of the refining capacity in the United States, and

all the pipelines flowing out o f 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 th e 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 to day.


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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 tothe 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 ukasiewicz, 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


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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

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 ne t 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.


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CHAPTER 2

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 sep This 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 sulphurcontent ('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 20 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 orsolution 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:


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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 m ust be heated or diluted before it

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 (570109 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


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,

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/(kgC), the formula is:

,

where the temperature tis in Celsius and dis the specific gravity at 15 C.

2. c Latent eat of aporization

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 tis in Celsius and dis the specific gravity at 15 C.


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2.3 m i c il

Fig .2

Structureofvanadiumporphyrincompoundextracted frompetroleumby

Alfred E. Treibs, fatheroforganicgeochemistry. Treibsnoted theclose

structural similarityof thismoleculeandchlorophyll a.

According togenerallyaccepted theory,petroleum isderived fromancient

biomass. It isa fossil fuel derived fromancient fossili edorganicmaterials.

The theorywas initiallybasedon the isolationofmolecules frompetroleum

that closelyresembleknownbiomolecules.

orespecifically,crudeoil andnatural gasareproductsofheatingofancient

organicmaterials i.e. kerogen)overgeological time. ormationofpetroleum

occurs fromhydrocarbonpyrolysis, inavarietyofmostlyendothermic

reactionsat high temperatureand/orpressure. Today'soil formed from the

preservedremainsofprehistoric ooplanktonandalgae,whichhadsettled to

aseaorlakebottom in large uantitiesundera noxicconditions theremains

ofprehistoric terrestrial plants,on theotherhand, tended to form coal). Over

geological time theorganicmattermixedwithmud,andwasburiedunder

heavy layersofsediment resulting inhigh levelsofheat andpressure

diagenesis). Thisprocesscaused theorganicmattertochange, first intoa


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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.

There were certain warm nutrient-rich environments such as the Gulf ofMexico and the ancient Tethys Sea where the large amounts of organic

material falling to the ocean floor exceeded the rate a t 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. So metimes, 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.


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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

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 ofgenerally 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


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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,

especially in industrialized nat ions 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 c onsiderable 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


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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 global ly.

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 o ther

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 po ints, 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 bun ker 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


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on board ships. Ships have enough space to he at 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.

Many oil spills have involved bunker fuel, leading some environmentalorganizations 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 haza rd 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 gasabove 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 theliquid 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


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gas by another set of reactions. The latter set is regularly used in

petrochemical plants and oil refineries.

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 oilto 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 o r

injection of water into the reservoir to increase pressure and force the oil tothe 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.


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CHAPTER

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 C art from 1977 to 2003 Monthly Price Chart 1998-April 2009

Hi

tor

& Anal

i

of Crude Oil Price

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 $76.31October $73.63

May $66.25 November $76.00

June $67.12 December $81.01

2010 A era e $71.21

Table 1.1


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2009



March $40.13/$39.88 September $60.98

April $42.45/$42.20October $67.43

May $51.27/$51.02 November $69.43

June $61.71/$61.46 December $66.33

2009 A era e $53.56/$53.48

Table 1.2

Prior to Februar 26t , 2009, t e posted price for Countr Mark, Plainsand Bi-Petro was identical. After t at date Countr Mark posted price is25 cents i er.

2008






June $126.33 December $32.942008 A era e $91.48

Table 1.3

2007




April $56.08October $77.56May $55.43 November $86.92

June $59.25 December $83-46

2007 A era e $64.20

Table 1.4


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2006







2006 A era e $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/$46.38October $55.12

May* $43.27/$43.02 November $51.18

June* $49.56/$49.80 December $52.31

2005 A era e* $50.04/$49.81

Table 1.6

*From February through June the posted price was not the same for all threecrude purchasers in the Illinois Basin. The first price is Countrymark Coopposted price average, the second price is Plains/Bi -Petro posted priceaverage.

2004







2004 A era e $37.41

Table 1.7


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2003







2003 A era e $27.69

Table 1.8

2002







2002 A era e $22.81

Table 1.9

2001







2001 A era e $23.00

Table 1.10


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Save Domestic Oil filed petition to stop the dumping of oil on U. S. marketsby Saudi Arabia, Venezuela and Mexico.

1997







Yearl A era e $18.97

Table 1.14

1996






June $18.50 December $23.38Yearl A era e $20.46

Table 1.15

1995




April $18.20October $15.72May $17.91 November $16.37



Table 1.16


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1994








Table 1.17

1993








Table 1.18

1992








Table 1.19


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1991


February $19.42 August $20.48March $18.67 September $20.43





Table 1.20

1990The price of crude oil spiked in 1990 due to the Iraqi invasion of Kuwaitand the Gulf War. The 1990s brought improved technology in drillingand production techniques.





May $17.36 November $28.38June $17.64 December $26.00


Table 1.21

1989








Table 1.22


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1988


February $15.50 August $14.25March $15.00 September $13.50





Table 1.23

1987



March $18.00 November $17.50



Table 1.24

1986




April 12.50 December $15.50

May $13.00 Yearl A era e $14.64

Table 1.25

1985From 1982 to 1985 OPEC attempted to set production quotas lowenough to stabilze prices. Repeated failures occured because variousmembers of OPEC would produce beyond their quotas. Saudi Arabiaacted as the swing producer cutting its pro duction to stem the freefalling prices. In August of 1985 they tired of this role and linked their oilprices to the spot market and in early 1986 increased production from 2MMBPD to 5 MMBPD.


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January $26.00

Feb. thruDecember

$27.00 Yearl A era $26.50

Table 1.26

1984

November $28.00

December $27.00 Yearl A era e $27.50

Table 1.27

1983

January $30.00

Feb. thru Oct.,1984

$29.00 Yearl A era e $29.00

Table 1.28

1982





June 31.00 December $31.00

July $31.00 Yearl A era e $31.55

Table 1.29

1981Events in Iran and Iraq led to another round of crude oil price increasesin 1979 and 1980. The Iranian revolution resulted in the loss of 2 to 2.5million barrels of oil per day between November of 1978 and June of1979. In 1980 Iraq's crude oil production fell 2.7MMBPD and Iran'sproduction by 600,000 barrels per day during the Iran/Iraq War. Thecombination of these two events resulted in crude oil prices more thandoubling from $14 in 1978 to $35 per barrel in 1981.


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Lower Tier - IL Upper Tier - ILReleased &Stripper

January $6.94 $15.07 $38.00

February $6.99 $15.19 $38.00

March $38.00

April $ $38

April, 1981 thruJan.,1982

$35.00

Table 1.30

1980Beginning in the 1980s the US became more energy efficient with betterinsulation of homes, energy efficiency in industrial processes, andautomobiles with higher gas mileage.


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 $38.00May $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


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1977


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


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

June $5.33 $11.55 $13.10Prices froze at this level until January 1, 1977, except stripper (uncontrolled).

September $14.00

Table 1.35

1975


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


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Table 1.36

1974

Lower Tier IL Upper Tier ILReleased &Stripper

August $5.20 $10.30

December $5.20 $11.20

Table 1.37

1973The Yom Kippur War started with an attack on Israel by Syria and Egypton October 5, 1973. The US and many other countries showed supportto Israel. As a result Arab exporting nations imposed an embargo on thenations supporting Israel, still known as th e Arab Oil Embargo here inthe United States.


April $3.60

August $4.20

September $4.20 $5.20

October $4.20 $5.85

November $4.20 $8.55December $5.20 $8.55

Table 1.38

1971In March of 1971, the balance of power to control crude oil prices shiftedfrom Texas, Oklahoma and Louisiana to OPEC. By the end of 1971 sixother nations had joined OPEC: Qatar, Indonesia, Libya, United ArabEmirates, Alageria and Nigeria.

1970

November 3.60

Beginning of TierPrices


December 3.60


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Table 1.39

1969 back to 1946

April 1, 1969 $3.35

March 17, 1969 $3.30March 1, 1969 $3.25

July 1, 1968 $3.20

August 1, 1967 $3.15

December 6, 1965 $3.10

October 11, 1963 $3.00Gravity pricingestablished

August 29, 1960 $3.00

OPEC wasformed in 1960with five

foundingmembers: Iran,Iraq, Kuwait,Saudi Arabia andVenezuela

June 20, 1960 $2.85

December 13,1957

$3.00

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

November 28,1947

$2.77

October 15, 1947 $2.27

March 10, 1947 $2.07

November 15,1946

$1.82

July 25, 1946 $1.72

April 1, 1946 $1.47

March 31, 1946 $1.37

Table 1.40


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3.2 CRUDE OIL RESERVES

y Technically, the use of charts and indicators is essential to

accommodate different strategies. Additionally, crudeoil trading can be

executed through various ways, such as futures, contract for difference (CFD)and more.

y While conventional crudeoil is currently the major source of petroleum

on the planet, it actually makes up a minority of crudeoil currently in reser e.

A bit less than one-third of the crudeoil known on the planet is in

conventional form.

3.3 CRUDE OIL FUTURES

3.3a W at 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, bu t now speculation and sophisticated value

investment dominate the commodities markets.

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 betwee n 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


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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 pricespeculations. 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 ke ep 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.

3.3b Crude oil futures

y NYMEXs trading hours are between 9am and 2.30pm Eastern Standard

Time. Controlling 1,000 barrels means that each crudeoilfutures contract

increases or decreases by $1,000 every time the value of crudeoil changesby one dollar.

y Traders hope to profit at expiration or settlement of a futures contract due to

a projected change in price. Oilfutures markets vary. Specific oilfutures

market opportunities exist forcrudeoil, where global distribution is often a

key element of these price speculations.


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3.3c W at is futures oil tradin ??

y 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 o f

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.

y 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.

y 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 th e

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.

y 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


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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 wont

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 Heatin oil futures

Heating oil futures are contracts for future delivery of heat ing 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.

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 ,


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and those who think prices will go down enter into contracts to sell. Tr aders,

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

y Technically, the use of charts and indicators is essential to

accommodate different strategies. Additionally, crudeoil trading can be

executed through various ways, such as futures, contract for difference (CFD)

and more.y Some forms ofcrudeoil are considered more valuable than others,

with light sweet crude typically commanding the highest prices on the

market. Sweet crude is a form ofcrudeoil 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.


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y 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 c olumn. 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.

y Distillation

y Distilled Watery Distillation Unit

y Water Distillation Unit

y Water Distillation Equipment

y Steam Distillation

y Distilled Water Machine

y

A fractional distillation unit separates mixed liquids where the boilingpoints 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.

y 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.


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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.

y Gasoline

y Gasoline Engines

y Free Gasoline

y Gasoline Prices

y Marine Gasoline

y DieselGasoline

3.6 CRUDE OIL COMMODITIES

3.6a What is a commodit ?

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


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the companys 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 invest ment being shuffled into copper.

The mainstream commodity market can be split into a number of differentmarkets: precious metals, industrial metals, livestock, agricultural products,

energy, and some commodities that dont easily fall into a classificatio n.

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, G ulf Coast gasoline, RBOB

gasoline, and uranium. The commodity market also includes rubber, wool,

polypropylene, polyethylene, and palm oil.

Many other things could be considered a commodity as well, but they are not

traded on a global spot market, and so a rent 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.


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3.6d Commodit Exchan e

y On the delivery date, which is the date when the purchase occurs, if

the commodit is higher in price than the contracted price, the futures

investor turns a profit on the price difference. Essentially,a c

ommodities

exchan e is a market for buying and selling commodities. In the investment

world,commodities are goods or investments bought and sold on a

commoditiesexchan e.

y Generally, the commodit exchan e will maintain a physical location

where trading activity takes place. Increasingly, a commodit exchan e will

also provide online access to trading activity, including the ability to trade on

the exchan e by electronic means.

3.6e Commodit Options

y This is the guaranteed price at which the investor can exercise the

option to buy or sell the commodit . The third characteristic of a commodit

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 commodit option.

y Those people will still experience some losses, because the premium

is generally nonrefundable. Commodit options trading involves high risks

but the returns can also be high.

3.6f Commodit Charts

y They can be used to examine the past, understand the present, and

predict the future. To make commodit charts useful, an analyst must have

the skills to interpret the data and then determine a course of action.

y The best vendors are the first to offer new products integrated with

cross commodit pricing,chartin , and modeling capabilities. Commodit

trading software should be strong on technical featur es.


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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

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.


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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 cant 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

Petro. For example, he lists iron ore, scrap, fuel, energy, duties,

tariffs, taxes, and currency exchange rates as cost drivers for

steel. Its important to know how the cost drivers are changing and

the proportion of each cost drivers impact on the final price for the

commodities that you are buying.

How Often Should Prices Be Re iewable 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.


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CHAPTER 4

USEFUL FACTS TO BE KNOWN ABOUT CRUDE OIL

4.1 SOME UESTIONS RELATED TO CRUDE OIL

4.1a What iscrude 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 todays investors are getting

educated about.

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. Theres also the potential for speculation which can

drive prices up or down. Combining this kind of volatility with the intraday


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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 forcrude 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

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, s uch as the ArabOil 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


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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.

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 oi l. 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 1960s, 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 tolubricate 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.


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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 beharnessed as fuel. Today, the oil derived from oil sands is c ommonly seen in

the production of synthetic oils.

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 publicvernacular 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.


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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

gallon barrel is still considered to be the correct l egal 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 el aborate 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.


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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 o f

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.

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. Thisprocess 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


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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 ar e 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

The oil is processed to yield a variety of products to meet demand for

everything from gasoline to bunker fuel. Major exporters ofoil 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.

y 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 factorsthat affect it along with the financial capabilities to take advantage of market

trends.


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4.1m How iscrude oil con erted 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 deliverthe 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 hydroc arbons. 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

be disentangled from other types of h ydrocarbon, 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 hea ted 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.


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4.1n Tips for the oil and gas in estors

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 gasinvestors 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 sign s 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

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 years time at the very least.

Another way is via investing in an oil and gas mutual fund. There are mutualfunds 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


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CHAP E

EY FI I S AND INFE ENCES

. PE E Y COUNTRY

Consumption statistics

lobal fossil carbonemissions,anindicatorofconsumption, for18002007. Total isblack, Oil is inblue.

orldenergyconsumption,19802030.Source:I ternationalEnergyOutlook

00 .

dailyoilconsumption from1980 to2006

oil consumptionbypercentageof totalperregion from1980 to2006:red=USA,bl e=Europe,yell =Asia+Oceania

Fig re2.

. Cons m ion

Fig re2.2Oil consumptionpercapita darkercolorsrepresent moreconsumption).This tableorders in thenext pageshows theamount ofpetroleumconsumed in2008 inthousandbarrels bbl)perdayand in thousandcubicmetres m3)perday:


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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

Table2.2

Source:U.S. Energy Information Administration

1 Peakproductionofconventional oil alreadypassed in thisstate

2 AlthoughCanadianconventional oil production isdeclining, total oil

production is increasingasoil sandsproductiongrows. Ifoil sandsareincluded, it has theworld'ssecond largest oil reservesafterSaudi Arabia.

3Thoughstill amember, Iraqhasnot been included inproduction figuressince1998.

5. b Export

Seealso: ossil fuel exporters

Figure2.Oil exportsbycountry.


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In order of net exports in 2006 in thousand bbl/d and thousand m/d:

# E orting Nation (2006) (103bbl/d) (103m3/d)

1Saudi Arabia (OPE ) 8,651 1,376

2 Russia1 6,565 1,044

3 Norway1 2,542 404

4 Iran (OPE ) 2,519 401

5 United Arab Emirates (OPE ) 2,515 400

6 Venezuela (OPE )1 2,203 350

7 Kuwait (OPE ) 2,150 342

8 Nigeria (OPE ) 2,146 341

9Algeria (OPE )1 1,847 297

10 Mexi o 1 1,676 266

11Libya (OPE )1 1,525 242

12 Iraq (OPE ) 1,438 229

13 Angola (OPE ) 1,363 217

14 Kazakhstan 1,114 177

15 Canada 2 1,071 170

Table 2.3

Source: US E ergy I ormation Admini tration

1 peak production already passed in this state

2 Canadian statistics are complicated by the fact it is both an importer andexporter of crude oil, and refines large amounts of oil for the U.S. market. It isthe leading source of U.S. imports of oil and products, averaging 2,500,000bbl/d (397,000 m3/d) in August 2007

Total world production/consumption (as of 2005) is approximately 84 millionbarrels per day (13,400,000 m3/d).

See also: Organization of Petroleum Exporting Countries


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5. c Import

Figure2.5Oil importsbycountry.

Inorderofnet imports in2006 in thousandbbl/dand thousandm/d:

Importing Nation (2006) (103bbl/day) (10

3m

3/day)

1 United States 1 12,220 1,943

2 Japan 5,097 810

3 China2 3,438 547

4G

ermany 2,483 3955 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 9215 Belgium 546 87

Table 2.4


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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 310IRA 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

CANADA 2,345 2,4

crude mntrshp projct

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