Forex trading,foreign exchange market, crude oil 13


What is difference between crude oil and hydrocarbon?




What Is Crude Oil?

Crude oil is a naturally occurring, unrefined petroleum product composed of hydrocarbon deposits and other organic materials. A type of fossil fuel, crude oil can be refined to produce usable products such as gasoline, diesel and various forms of petrochemicals. It is a nonrenewable resource, which means that it can't be replaced naturally at the rate we consume it and is, therefore, a limited resource.


What Is Hydrocarbon?

A hydrocarbon is an organic chemical compound composed exclusively of hydrogen and carbon atoms. Hydrocarbon molecules naturally occur and are found in crude oil, natural gas, coal and other important sources of energy. Burning hydrocarbons in the presence of sufficient oxygen produces carbon dioxide, water and heat, which is why hydrocarbons are desirable as fuels.

More About Crude Oil

Crude oil is typically obtained through drilling, where it is usually found alongside other resources, such as natural gas (which is lighter and therefore sits above the crude oil) and saline water (which is denser and sinks below). It is then refined and processed into a variety of forms, such as gasoline, kerosene, and asphalt, and sold to consumers.
Although it is often called "black gold," crude oil has ranging viscosity and can vary in color from black to yellow depending on its hydrocarbon composition. Distillation, the process by which oil is heated and separated in different components, is the first stage in refining.


 

Spot vs. Future Oil Prices

Futures prices for crude oil can be higher, lower or equal to spot prices. The price difference between the spot market and the futures market says something about the overall state of the oil market and expectations for it. If the futures prices are higher than the spot prices, this usually means that purchasers anticipate the market will improve, so they are willing to pay a premium for oil to be delivered at a future date. If the futures prices are lower than the spot prices, this means that buyers expect the market to deteriorate.

"Backwardation" and "contango" are two terms used to describe the relationship between expected future spot prices and actual futures prices. When a market is in contango, the futures price is above the expected spot price. When a market is in normal backwardation, the futures price is below the expected future spot price.
The prices of different futures contracts can also vary depending on their projected delivery dates.

Forecasting Oil Prices

Economists and experts are hard-pressed to predict the path of crude oil prices, which are volatile and depend on various situations. They use a range of forecasting tools and depend on time to confirm or disprove their predictions. The five models used most often are:
  • oil futures prices
  • regression-based structural models
  • time-series analysis
  • Bayesian autoregressive models
  • dynamic stochastic general equilibrium graphs

Oil Futures Prices

Central banks and the International Monetary Fund (IMF) mainly use oil futures contract prices as their gauge. Traders in crude oil futures set prices by two factors: supply and demand and market sentiment. However, futures prices can be a poor predictor, because they tend to add too much variance to the current price of oil.


Extracting Hydrocarbons

Different techniques are used to extract hydrocarbons depending on their type and the material they’re contained in. For example, hydraulic fracturing is used to extract natural gas from shale by cracking the rock and using pressurized liquid to force the gas up through a well to the earth’s surface. Similarly, oil sands are unconventional deposits of crude that are mixed in with sand or partially formed sandstone, requiring the deposit to be mined. A conventional vertical or horizontal well is used when a productive formation is easily accessed.

 

The Hydrocarbon Economy

Hydrocarbons are, of course, the main source of energy around the world. The uses of hydrocarbons go far beyond simply providing fuel that can be converted into energy. Through refining, petroleum has provided a wide range of derivative materials that play critical roles in the world economy, including plastics, solvents and lubricants. If all machinery were converted to renewable energy today, hydrocarbon extraction would still be required for these derivative products. This dependence on fossil fuels has led to the term hydrocarbon economy being used to describe the current global economy.

Hydrocarbons and the Environment

There is an environmental cost to burning hydrocarbons for energy. Greenhouse gasses released during combustion are contributing to climate change and the extraction process exacts a toll from natural habitats. Many argue that the externalities of the hydrocarbon economy are much higher than any cost savings from their uses as a fuel source. For this reason, alternative energy sources like solar, nuclear, wind and geothermal are being explored. Currently, however, the cost competitiveness of these alternative sources is not sufficient to wholly replace hydrocarbons.

Crude oil is a mixture of hydrocarbons that exists as a liquid in underground geologic formations and remains a liquid when brought to the surface. Petroleum products are produced from the processing of crude oil and other liquids at petroleum refineries, from the extraction of liquid hydrocarbons at natural gas processing plants, and from the production of finished petroleum products at blending facilities. Petroleum is a broad category that includes both crude oil and petroleum products. The terms oil and petroleum are sometimes used interchangeably.




How long will our crude oil last?


Fossil fuels are hundreds of millions of years old, but in the last 200 years consumption has increased rapidly, leaving fossil fuel reserves depleted and climate change seriously impacted. Reserves are becoming harder to locate, and resources won’t last forever – here’s when fossil fuels could run out.

What are fossil fuels?

Fossil fuels are biological materials containing hydrocarbon, which can be burned and used as a source of energy. They’re found in the Earth’s crust, so we have to drill into the earth to extract them.
Fossil fuels developed billions of years ago, when dead organic matter became buried at the bottom of the sea and altered as a result of anaerobic digestion. Oil deposits in the North Sea are around 150 million years old, while much of Britain’s coal began to form over 300 million years ago.
While we probably used fossil fuels as far back as the Iron Age, it wasn’t until the Industrial Revolution that wide-scale extraction started. It completely transformed the way humanity lived and worked, allowing us to power our homes, businesses and machines with coal, oil and gas.


How long will fossil fuels last?

Global fossil fuel consumption is on the rise, and new reserves are becoming harder to find. Those that are discovered are significantly smaller than the ones that have been found in the past. Oil reserves are a good example: 16 of the 20 largest oil fields in the world have reached peak level production – they’re simply too small to keep up with global demand.
In order to keep average global temperature increases below 1.5°C, we need to leave up to 80% of our fossil fuel reserves in the ground – but globally, our reliance on fossil fuels is increasing. Here’s how long current fossil fuel reserves could last:


Oil

Globally, we currently consume the equivalent of over 11 billion tonnes of oil from fossil fuels every year. Crude oil reserves are vanishing at a rate of more than 4 billion tonnes a year – so if we carry on as we are, our known oil deposits could run out in just over 53 years.

Gas

If we increase gas production to fill the energy gap left by oil, our known gas reserves only give us just 52 years left.

Coal

Although it’s often claimed that we have enough coal to last hundreds of years, this doesn’t take into account the need for increased production if we run out of oil and gas.
If we step up production to make up for depleted oil and gas reserves, our known coal deposits could be gone in 150 years.

Are there any advantages to fossil fuels?

While there are some benefits to fossil fuel production, the adverse effects on the environment and overall public health far outweigh them. But governments and businesses around the world have placed short term gain from investing in fossil fuels above the longer term benefits of renewable energy.

What about fracking?

Fracking involves the extraction of shale gas by drilling into the Earth and pumping boreholes full of a high pressure water mixture. Shale gas is a type of fossil fuel, which means supplies will eventually run out.
It’s unclear how much shale is available at fracking sites in the UK but, because current activity is still in the exploratory phase, virtually no planning permission is needed to begin drilling. Works have been halted in the UK due to earthquakes and seismic activity, but the government still provides backing to fracking companies, despite widespread public opposition.
You can find out more about fracking and the environmental risks posed by fracking activity here.

According to the U.S. Energy Information Administration’s (EIA) International Energy Outlook 2017 (IEO2017), the global supply of crude oil, other liquid hydrocarbons, and biofuels is expected to be adequate to meet the world's demand for liquid fuels through 2050. There is substantial uncertainty about the levels of future liquid fuels supply and demand. EIA reflects some of this uncertainty by developing a Reference case, High and Low Economic Growth cases, and High and Low Oil Price cases in its projections. The oil resources currently in the earth's crust, in combination with expected production of other liquid fuels, are estimated to be sufficient to meet total world demand for liquid fuels in all cases of the IEO2017.

An often cited, but misleading, measurement of future resource availability is the reserves-to-production ratio, which is calculated by dividing the volume of total proved reserves by the volume of current annual consumption. Proved reserves are an accounting concept that is based on known projects, and it is not an appropriate measure for judging total resource availability in the long term. Over time, global reserves will likely increase as new technologies increase production at existing fields and as new projects are developed.


 

The green alternative

Unlike fossil fuels, green energy made from wind and solar power is sustainable, because its generated by resources that won’t run out. Plus, it provides a way to fight climate change by reducing and even offsetting carbon emissions.
For example, the energy payback for solar power technology  is just two years. That means it only takes two years for a solar park to make the same amount of energy used in its manufacture and installation. And after that, it can provide decades of clean energy that’s better for the planet.
If we have any hope of fighting climate change and protecting the future of our planet, we need to ditch fossil fuels and start investing in renewable sources of energy. Find out how you can switch to green energy quickly and easily, and start building a greener Britain.



How influential would an “OPEC” be if a new one was founded by both the USA and Canada and it also included natural gas?

Few observers and even few experts remember that the Organization of Petroleum Exporting Countries (OPEC) was created in response to the 1959 imposition of import quotas on crude oil and refined products by the United States. In 1959, the U.S. government established the Mandatory Oil Import Quota program (MOIP), which restricted the amount of imported crude oil and refined products allowed into the United States and gave preferential treatment to oil imports from Canada, Mexico, and, somewhat later, Venezuela. This partial exclusion of Persian Gulf oil from the U.S. market depressed prices for Middle Eastern oil; as a result, oil prices “posted” (paid to the selling nations) were reduced in February 1959 and August 1960.
In September 1960, four Persian Gulf nations (Iran, Iraq, Kuwait, and Saudi Arabia) and Venezuela formed OPEC in order to obtain higher prices for crude oil. By 1973, eight other nations (Algeria, Ecuador, Gabon, Indonesia, Libya, Nigeria, Qatar, and the United Arab Emirates) had joined OPEC; Ecuador withdrew at the end of 1992, and Gabon withdrew in 1994.
The collective effort to raise oil prices was unsuccessful during the 1960s; real (i.e., inflation-adjusted) world market prices for crude oil fell from $9.78 (in 2004 dollars) in 1960 to $7.08 in 1970. However, real prices began to rise slowly in 1971 and then increased sharply in late 1973 and 1974, from roughly $10.00 per barrel to more than $36.00 per barrel in the wake of the 1973 Arab-Israeli (“Yom Kippur”) War.

Despite what many noneconomists believe, the 1973–1974 price increase was not caused by the oil “embargo” (refusal to sell) that the Arab members of OPEC directed at the United States and the Netherlands. Instead, OPEC reduced its production of crude oil, raising world market prices sharply. The embargo against the United States and the Netherlands had no effect whatsoever: people in both nations were able to obtain oil at the same prices as people in all other nations. This failure of the embargo was predictable, in that oil is a “fungible” commodity that can be resold among buyers. An embargo by sellers is an attempt to raise prices for some buyers but not others. Only one price can prevail in the world market, however, because differences in prices will lead to arbitrage: that is, a higher price in a given market will induce other buyers to resell oil into the high-price market, thus equalizing prices worldwide.




Nor, as is commonly believed, did OPEC cause oil shortages and gasoline lines in the United States. Instead, the shortages were caused by price and allocation controls on crude oil and refined products, imposed originally by President Richard Nixon in 1971 as part of the Economic Stabilization Program. Although the price controls allowed the price of crude oil to rise, it was not allowed to rise to free-market levels. Thus, the price controls caused the amount people wanted to consume to exceed the amount available at the legal maximum prices. Shortages were the inevitable result. Moreover, the allocation controls distorted the distribution of supplies; the government based allocations on consumption patterns observed before the sharp increase in prices. The higher prices, for example, reduced long-distance driving and agricultural fuel consumption, but the use of historical consumption patterns resulted in a relative oversupply of gasoline in rural areas and a relative undersupply in urban ones, thus exacerbating the effects of the price controls themselves. Countries whose governments did not impose price controls, such as (then West) Germany and Switzerland, did not experience shortages and queues.
OPEC is in many ways a cartel—a group of producers that attempts to restrict output in order to raise prices above the competitive level. The decision-making center of OPEC is the Conference, comprising national delegations at the level of oil minister, which meets twice each year to decide overall oil output—and thus prices—and to assign output quotas for the individual members. Those quotas are upper limits on the amount of oil each member is allowed to produce. The Conference also may meet in special sessions when deemed necessary, particularly when downward pressure on prices becomes acute.

OPEC faces the classic cartel enforcement problem: overproduction and price cheating by members. At the higher cartel price, less oil is demanded; output quotas are necessary in that each member of OPEC has an incentive to sell more than its quota by “shaving” (cutting) its price because the cost of producing an additional barrel of oil usually is well below the cartel price. The methods available to engage in such cheating are numerous: sellers can extend credit to buyers for periods longer than the standard thirty days, sell higher grades (or blends) of oil for prices applicable to lower grades, give transportation credits, offer buyers side payments or rebates, and so on.

This tendency of individual producers to cheat on a cartel agreement is a long-standing feature of OPEC behavior. Individual producers usually have exceeded their production quotas, and so official OPEC prices have been somewhat unstable. But unlike the classic “textbook” cartel, OPEC is unusual in that one producer—Saudi Arabia—is much larger than the others. This condition has caused Saudi Arabia to serve, from time to time, as the OPEC “swing” producer—that is, the producer that adjusts its output in order to preserve the official price in the world market. One reason the Saudis have so acted is that downward pressure on the official price imposes larger total losses on them than on the other OPEC producers in the short run. The Saudis, in their efforts to defend the official OPEC price, have periodically reduced their sales, at times dramatically, thus reducing their revenues substantially. In 1983, 1984, and 1986, for example, the Saudis produced only about 3.5 million barrels per day, despite their (then) production capacity of about 10 million barrels per day.
How successful has OPEC been since the early 1970s? Not as successful as many observers believe. Except in the wake of the 1979 Iranian upheaval, and in market anticipation of a possible destruction of substantial reserves in the 1990–1991 and 2003 Gulf wars, real prices of crude oil fell from 1974 through 2003. Prices increased in 2004 and (thus far) 2005, but this has little to do with the effectiveness of OPEC as a cartel. The causes of the 2004 and 2005 price increases were increased demand in Asia; production problems in Venezuela, Nigeria, and other producing regions; a weakening dollar; and an increased terrorist threat to oil production and transport facilities. Over the longer time frame, prices began declining rapidly in the early 1980s, after the Reagan administration ended the price and allocation regulations, which, because of their specific design, increased the U.S. demand for foreign oil. The Saudis then concluded that lower prices and higher production would further their interests; world market prices (in 2004 dollars) fell from $62.76 per barrel in 1981 to $44.89 in 1984, $21.84 in 1986, and $21.39 in 1988. Indeed, prices even unadjusted for inflation often have declined, from $34.28 in 1981 to $14.96 in 1988.

This longer-term downward trend in prices has yielded increased tensions between two rival groups within OPEC. The price “hawks”—for the most part nations with smaller reserves relative to population—have pressed for lower output and higher prices; the principal hawks within OPEC have been Iran and Iraq before the overthrow of the Baathist regime of Saddam Hussein. The price “doves”—for the most part nations with larger reserves relative to population—have argued for higher output and lower prices, so as to preserve over the longer term their oil markets, and thus the economic value of their oil resources. The principal doves within OPEC are Saudi Arabia, Kuwait, and the United Arab Emirates.




Over the long run, the real prices of natural resources and commodities usually fall, largely because of technological advances. Crude oil is no exception. From about $47 per barrel (2004 dollars) in the late 1860s, prices fell to about $28 in 1920, about $13 in 1950, about $12 in 1960, and about $7 in 1970. The price increases of the 1970s and the first half of the 2000s are relatively recent phenomena, and historical patterns suggest that they will not be long-lived. Technological advances in seismic exploration have dramatically reduced the cost of finding new reserves, thus greatly increasing oil reserves; proven world crude oil reserves have doubled since 1980. Horizontal drilling and other new techniques have reduced the cost of producing known reserves, while other technological improvements yield both substitutes for oil and ways to use less oil to achieve given ends.

Moreover, advances in technology over time similarly will reduce prices for such substitute fuels as natural gas, thus exerting continuing downward pressure on crude oil prices. Also, an increasing willingness to devote resources toward environmental improvement suggests that the market for crude oil may decline relative to those for such “cleaner” energy sources as natural gas and nuclear power, unless other technological advances yield substantial improvement in the ability to use oil cleanly. Accordingly, the demand for crude oil over the long term may decline relative to the demand for competing fuels, just as wood gradually gave way to coal—which in turn gave way to oil. These long-term market forces suggest that the economic power of OPEC inexorably will erode.

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