CRUDE OIL PRICES

FUNDAMENTALS AND
TECHNICALS
Anupam Basu

Introduction
What is crude oil?
Crude oil is a naturally-occurring substance
found in certain rock formations in the earth.
It is a dark, sticky liquid classified as a
hydrocarbon. This means, it is a compound
containing mainly carbon and hydrogen.
Crude oil is highly flammable and can be
burned to create energy.

History of Oil: The first commercial oil well drilled in Romania in

1857.
The Indian petroleum industry is also one of the
oldest in the world, with Oil being struck at Makum
near Margherita in Assam in 1867.
In 1889 in Digboi in Assam first oil was struck by
Burma oil company.
At the beginning of the 20th century oil supplied
only 4% of the worlds energy but know it has
become the most important energy source and
supplies about 37% of the worlds energy.
Since the shift from coal to oil, the world has
consumed over 875 billion barrels. Another 1,000
billion barrels of proved and probable reserves
remains to be recovered.

Components of Oil: The exact molecular composition varies widely

from formation to formation but the proportion
of chemical elements vary over fairly narrow
limits as follows:
Carbon -- 83-87%
Hydrogen --10-14%
Nitrogen--0.1-2%
Oxygen--0.1-1.5%
Sulfur--0.5-6%
Metals-- <1000ppm

Classification:

The petroleum industry generally classifies

crude oil by:1. The geographic location it is produced in.
2. Its API gravity.
3. By its sulfur content.
1. According, to the geographic location some of
the types are Brent crude, WTI (West Texas
Intermediate) crude etc. The geographic
location is important because it affects
transportation costs to the refinery.

2.

API ( American Petroleum Institute)

Gravity:-A specific gravity scale developed
by the American Petroleum Institute (API)
for measuring the relative density of
various petroleum liquids, expressed in
degrees. It is given by:API Gravity = 141.5/ specific gravity
131.5

Eg:- API of water = 10. (Because S.G. of

water=1).

API values of some other crude oils are:Crude from Bombay High
35-38
Gulf
25-28
Venezuela
15

3. According to sulfur content:- Crude oil is

referred to as Sweet if it contains relatively

little sulfur or Sour if it contains substantial
amounts of sulfur.
Sweet oil commands a higher price than Sour
oil because it has fewer environmental
problems and requires less refining to meet
sulfur standards.
Crude oil may be considered light if it has low
density (or high API Gravity) or heavy if it has
high density (or low API Gravity).
Light crude oil is more desirable than heavy
oil since it produces a higher yield of gasoline.

Fundamental factors affecting crude

oil prices

World oil demand

World oil supply
Weather conditions
GDP
Government policy
Political Conditions
Futures Market

Technical factors affecting Crude oil

prices
Hedging:- A hedge is a position
established in one market in an
attempt to offset exposure to price
fluctuations. So, we can mitigate the
risk of crude oil price fluctuations by
hedging it.