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About Crude Oil (CL)
Distillation is the primary method of refining Crude Oil into
its resulting products. The Crude Oil is heated at the bottom
of a tall metal tower. As the crude gets hotter, it turns to a
gaseous state and the vapors rise. As the vapors rise, they cool.
Each Crude Oil by product, in its gaseous state, has a specific
cooling temperature, corresponding with a height of the tower.
At these predetermined heights in the tower, pipes lead off to
separate the various petroleum products. Heavier fractions like
fuel oils, and diesel fuel are taken from the bottom part of the
heating tower. Lighter fractions like butane, gasoline, and kerosene
are taken from the top of the tower. The heating tower produces
the rough materials for the six basic categories of petroleum
products. The six basic types of refined petroleum products are:
Jet Fuel, kerosene, motor gasoline, diesel fuel, residual fuel
and distillate fuels. The major use of Crude Oil is for refining
into its various products, such as gasoline and heating oil.
One of the major influences on the supply of Crude Oil is the
Organization of Petroleum Exporting Countries, or OPEC. In the
early 1970’s, the ownership of oil production in the Middle
East transferred from the operating companies to the governments
of the oil producing nations, or their national oil companies.
It was in 1973 when OPEC began to have a major influence on the
price of Crude Oil. Through limitation of production by a quota
system, OPEC was able to curtail production and drive prices up.
From the 1973 price level of $7 a barrel, prices rose roughly
400% in less than a decade to $34 a barrel.
OPEC’s dramatic success in increasing oil prices also has
cost it a lot of influence in recent years. Higher Crude Oil prices
have allowed new sources of supply to be brought on line. For
example, in the mid 1970’s OPEC production of Crude Oil accounted
for roughly two thirds of the world oil supply. According to recent
American Petroleum Institute statistics, OPEC countries account
for roughly 40% of the worlds daily Crude Oil production. OPEC
countries produce roughly 27.8 million barrels Crude Oil a day,
while non OPEC countries produce 42.1 million barrels of Crude
a day. The standard measure for Crude Oil is barrels, which equates
to 42 gallons. Even though OPEC’s influence in the world
Crude Oil market has diminished, OPEC is still a major factor
in the world Crude Oil production equation.
The following countries are OPEC members: Algeria, Ecuador, Gabon,
Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia,
the United Arab Emirates, and Venezuela. Relations have been strained
in recent years between the United States and NATO countries with
several OPEC member countries. These political influences have
a major effect on the price of oil. Trade embargoes on oil producing
countries can have major ramifications on the price of crude oil.
Political factors in non OPEC countries are also very important.
The former Soviet States are major producers of Crude Oil making
that political climate a major effect on the supply of oil and
its price.
Crude Oil is the raw material for all petroleum products, from
gasoline to lubricants. A typical 42 gallon barrel of Crude Oil
is broken down into the following components: 19.4 gallons is
used to produce gasoline; 8.9 gallons are used to produce distillate
fuels, such as Heating Oil; 4.2 gallons goes for the production
of kerosene jet fuel, while 2.7 gallons is used in the production
of residual fuels. The remainder is primarily for chemical production
and lubricants.
As can be clearly seen from the above break down of a typical
barrel of oil, the bulk of the Crude Oil produced is used in the
production of gasoline. As such, the major demand for Crude Oil
is the demand for gasoline. Several broad based macro economic
elements affect the demand for Crude Oil and gasoline, such as
income levels, economic growth levels, populations, and consumer
habits. Demand for Crude Oil and its refined products is generally
broken down into three main classifications; residential/commercial,
transportation, and industrial and utility demand. Commercial
and industrial users are the major sources of demand for petroleum.
Refineries in the United States are the first line consumers
of Crude Oil. Closings of refineries due to maintenance and adverse
weather, such as hurricanes and earth quakes, will limit the supply
of refined products increasing future demand for Crude Oil. Refineries
must then make bulk purchases to make up for lost time to restock
their inventories of refined products.
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