Crude Oil is the Most Actively Traded Commodity

Crude Oil

Crude oil is the most actively traded commodity and its makes up the largest component of world trade. It represent the lifeblood our complex economy. Crude oil is made into gasoline, airplane fuel, diesel fuel and it powers our cars, planes, trains, busses and it is an essential component for making plastic.

What is crude oil and where does crude oil come from?

Crude Oil, also referred to as “black-gold”, is a smelly yellow-black liquid found underground in reservoirs. Crude oil comes from the remains of small plants and animals that died millions of years ago. After the organisms died, they sank into the sand and mud at the bottom of the sea. Over the years, the organisms decayed in the sedimentary layers. In these layers, there was little or no oxygen present. So microorganisms broke the remains into carbon rich compounds that formed organic layers. Layer on top of layer was added and caused heat and pressure to refine the organic material into crude oil and natural gas.

Different types of crude oil?

There are different types of crude oil and they contain a different chemical makeup depending on the types of plants and animals that created the crude oil reservoir. Primarily, crude oil is made up of hydrocarbons, plus a variety of other chemical compounds, depending on the region. Some crude oil contains lots of sulfur and is “sour” while oil with little sulfur is called “sweet crude”. Crude oil can also be thicker (light crude) or thinner (heavy crude) depending on its location. Light Sweet crude oil is priced at a higher rate and is easier to refine and has fewer environmental problems than heavy sour crude oil.

Where is crude oil found?

Crude oil is found all around the world. Leading producers of crude oil include Russia, followed by Saudi Arabia, the United States, Iran and China. Within the United States, Alaska and Texas are the top producers of crude oil. California, Oklahoma and Louisiana are also major producers, as are the offshore drilling sites in the Gulf of Mexico.

In spite of oils importance to our way of life publically traded companies such as BP, Shell, Exxon Mobile, and Chevron only controls around 15% of the world’s reserves. The other 85% is controlled by governments and state held companies.

New discoveries are few and far between. This has caused many oil companies to drill for oil in unfriendly territories.

Have we research the peak?

This is a much debated subject. The idea of “peak oil” was first introduced by M. King Hubbert, a geophysicist working for Shell Oil Company. His theory said that the production of oil in a field, a country, or the entire planet would look like a bell curve. It would increase until it hits it peak and it thereafter forever fall. In 1956 he made a prediction that the US oil production would peak around the late 1960s and early 1970s and then go into a decline. He was dismissed at the time but as production in the US peaked out in the 1970 his prediction 14 years earlier proved to be correct.

Many of the enormous oil fields that were discovered and developed in the 1970s are in decline. The North Sea hit its peak in the mid 1980s and has since been in decline. In 2000 the decline was accelerated.

One of the world’s last giant oil fields was discovered in Mexico. The Cantarell field in Mexico was discovered in 1975. This made Mexico into a large oil producer. However, by 2003 the field had already started declining.

In 2008 the average field declined by 5 percent. As a result water has been pumped into the ground to keep pressure up along with many other oil recovery techniques to reduce the rate of decline.

New Oil Discoveries

There are both small and large discoveries of oil happening all the time. However, one problem is that the only large discoveries within the last decade have been in geographically undesirable locations to say the least.

In northern Canada large oil reserves in form of oil tar sands has been found. The reserves of oil tar sand available in Canada are massive and rank close behind Saudi Arabia. However, getting all this oil out of the ground is and highly energy intensive and expensive. To make this operation profitable oil needs to stay at a high price.

Other large oil fields were discovered in the deep waters outside Brazil. These three oil fields called Tupi, Jupiter, and Sugar Loaf was found 180 miles outside the coast of Rio de Janeiro. It is estimated that they contain around 80 billion barrels of oil, enough to make Brazil a major oil producer. The problem with these discoveries is that the oil is 2.5 miles below the seabed making it very difficult and expensive to bring the oil up to the surface. Without consistently high prices these fields will not be profitable.

Moving Forward

According to the International Energy Agency (IEA) the world’s production from current fields is expected to decline without new discoveries. There is still many oil reserves available but one problem is that they are hard to get to and expensive to develop.

With lagging production and new demand from China and emerging economies we are likely to see shortages and higher prices as countries will start competing for scarce resources. Unless more oil is found quickly or inexpensive and reliable alternative fuels are developed the world will see ever higher oil prices.

Top World crude oil producers / consumers
(Thousand Barrels per Day)
Country                          Production                       Country                       Consumption
1 Russia                             9,934                       1 United States                       18,810
2 Saudi Arabia                   9,760                       2 China                                    8,324
3 United States                  9,141                       3 Japan                                    4,443
4 Iran                                4,177                       4 India                                      3,110
5 China                             3,996                       5 Russia                                    2,740
6 Canada                          3,294                       6 Brazil                                     2,522
7 Mexico                          3,001                       7 Germany                                2,440
8 UAE                              2,795                       8 Saudi Arabia                          2,438
9 Brazil                              2,577                      9 South Korea                           2,185
10 Kuwait          2,496                     10 Canada                 2,151
11 Venezuela     2,471    11 Mexico    2,084
12 Iraq     2,400    12 France    1,828
13 Norway    2,350    13 Iran    1,691
14 Nigeria     2,211    14 UK    1,667
15 Algeria     2,126    15 Italy    1,528
The data is from 2009 and gathered from the Energy Information Administration (EIA)

Top World crude oil Importers / Exporters
(Thousand Barrels per Day)
Country     Imports     Country     Exports
1 United States    9,669    1 Saudi Arabia    7,322
2 China    4,328    2 Russia    7,194
3 Japan    4,311    3 Iran    2,486
4 Germany    2,307    4 UAE    2,303
5 India    2,233    5 Norway    2,132
6 South Korea    2,139    6 Kuwait    2,124
7 France    1,749    7 Nigeria    1,939
8 UK    1,588    8 Angola    1,878
9 Spain    1,439    9 Algeria    1,807
10 Italy    1,381    10 Iraq    1,764
11 Netherlands    1,122    11 Venezuela    1,748
12 Taiwan    944    12 Libya    1,525
13 Singapore    916    13 Kazakhstan    1,299
14 Thailand    601    14 Canada    1,144
15 Belgium    597    15 Qatar    1,066
The data is from 2009 and gathered from the Energy Information Administration (EIA)

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