Oil
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[edit] Overview
Oil or Crude Oil is a naturally occurring, flammable liquid found in rock formations in the Earth consisting of a complex mixture of hydrocarbons of various molecular weights, plus other organic compounds. The proportion of hydrocarbons in the mixture is highly variable and ranges from as much as 97% by weight in the lighter oils to as little as 50% in the heavier oils and bitumens.
Crude oil varies greatly in appearance depending on its composition. It is usually black or dark brown (although it may be yellowish or even 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 generally floats underneath it. Crude oil may also be found in semi-solid form mixed with sand, as in the Athabasca oil sands in Canada, where it may be referred to as crude bitumen.
[edit] Charts
[edit] Applications
Burning crude oil itself is of limited use. To extract the maximum value from crude, it first needs to be refined into petroleum products. The best-known of these is gasoline, or petrol. However, there are many other products that can be obtained when a barrel of crude oil is refined. These include liquefied petroleum gas (LPG), naphtha, kerosene, gasoil and fuel oil. Other useful products which are not fuels can also be manufactured by refining crude oil, such as lubricants and asphalt (used in paving roads). A range of sub-items like perfumes and insecticides are also ultimately derived from crude oil.
Furthermore, several of the products listed above which are derived from crude oil, such as naphtha, gasoil, LPG and ethane, can themselves be used as inputs or feedstocks in the production of petrochemicals. There are more than 4,000 different petrochemical products, but those which are considered as basic products include ethylene, propylene, butadiene, benzene, ammonia and methanol. The main groups of petrochemical end-products are plastics, synthetic fibres, synthetic rubbers, detergents and chemical fertilisers.
Considering the vast number of products that are derived from it, crude oil is a very versatile substance. Life as we know it today would be extremely difficult without crude oil and its by-products. [2]
[edit] Supply/Demand
[edit] Supply
The Mideast remains the largest oil-producing region, as shown in the accompanying graphs. Mideast dominance in oil reserves -- the estimated amount of oil that can be produced from known reservoirs -- is even more pronounced: the region holds about two-thirds of the one trillion barrels of global proved oil reserves (graph), so the region's critical role in world oil supply will continue and will grow.
North America (graph)is the second largest producing area after the Middle East. The United States, the second largest producing country in the world, accounts for almost 60 percent of the North American region’s total. Canada, the United States and Mexico all have long production histories, and production from mature fields has been declining. However, a new surge in technology has benefited both new field development and more complete production from existing fields.
North Sea production, off the United Kingdom and Norway, began in the late 1970s. In contrast to predictions from the early 1980s of the imminent decline in the region’s production, the North Sea (graph) has yet to see its peak. The region's success with new exploration and production technology, and hence its continuing volume growth, has been a central factor in world oil markets for a decade.
Production in the Soviet Union peaked at about 12 million barrels a day in the early 1980s (graph), when it was the top world oil producer. The region’s demand collapse, in combination with its aggressive production targets set to maintain foreign exchange, masked its rapid production decline in the late 1980s as the Soviet Union broke up. The former Soviet Union has recently been the third-ranked producer, after Saudi Arabia and the United States. One of the most visible new production prospects has been the Caspian Sea in Central Asia, in spite of the enormous logistical and political hurdles involved in getting the oil produced to world markets. [3]
Forecast
- Non-OPEC Supply About 0.9 million bbl/d of non-OPEC supply growth is projected in 2008, slightly higher than last month’s forecast. Brazil is expected to account for the largest share of the expected gain in non-OPEC supply in 2008. A number of countries are expected to experience declining oil production, such as the United Kingdom, Mexico, and Norway. The pace and timing of non-OPEC supply growth will continue to be subject to possible delays in key projects. Recent history has shown that non-OPEC capacity growth projections often fall short of expectations.
- OPEC Supply EIA projects that OPEC crude oil production will average about 32.2 million bbl/d during the first quarter of 2008. This level is about 0.6 million bbl/d above fourth quarter 2007 levels. The increase mainly reflects higher production from Saudi Arabia, Angola, Kuwait, and the United Arab Emirates. The pace of consumption growth, inventory trends, and oil prices will influence OPEC members’ production strategy for the remainder of 2008. Based on EIA’s projections of consumption and non-OPEC supply for the remainder of the year, OPEC crude production is expected to remain near first quarter levels for the remainder of the year. If consumption rises more slowly than expected and OECD inventories climb relative to the 5-year average, OPEC would likely consider lowering output to avoid a sharp price decline (OPEC Surplus Oil Production Capacity). EIA also expects OPEC non-crude liquids production to increase by 230,000 bbl/d in 2008.[4]
[edit] Demand
- OECD oil product demand has been upped by 53 kb/d in 2007 following stronger-than-expected 4Q07 demand in North America and Europe. By contrast, the 2008 demand forecast was lowered by 83 kb/d, following a reassessment of gasoil demand prospects in 1Q08, particularly in the US. OECD demand, estimated at 49.2 mb/d in 2007 (-0.2% year-on-year), is expected to average 49.7 mb/d in 2008 (+1.1%).
- Non-OECD oil product demand has been revised up by some 100 kb/d in both 2007 and 2008, following the baseline reappraisal of several countries, including Chinese Taipei, Indonesia, Malaysia and Iran, which largely offset a small downward adjustment in shortage-stricken China. As such, non-OECD demand is now seen averaging 36.6 mb/d in 2007 (+3.2% on an annual basis) and 38.1 mb/d in 2008 (+4.0%). [5]
Forecast
World oil consumption is expected to grow by 1.4 million bbl/d in 2008, about 0.2 million bbl/d lower than last month’s assessment, due to increased risks of a global economic slowdown in 2008 (World Oil Consumption). Non-Organization for Economic Cooperation and Development (OECD) countries are expected to account for 1 million bbl/d of world consumption growth in 2008, with gains concentrated in China, India, other Asian countries, and the Middle East. OECD countries are expected to register a 0.3-million-bbl/d gain in consumption in 2008, compared with a decline of 0.2 million bbl/d in 2007, reflecting both weather factors and increased demand for oil in Japan for power generation.[6]
[edit] Pricing Structure
The only very long term price series that exists is the U.S. average wellhead or first purchase price of crude. When discussing long-term price behavior this presents a problem since the U.S. imposed price controls on domestic production from late 1973 to January 1981. In order to present a consistent series and also reflect the difference between international prices and U.S. prices we created a world oil price series that was consistent with the U.S. wellhead price adjusting the wellhead price by adding the difference between the refiners acquisition price of imported crude and the refiners average acquisition price of domestic crude.
Until the March 28, 2000 adoption of the $22-$28 price band for the OPEC basket of crude, oil prices only exceeded $24.00 per barrel in response to war or conflict in the Middle East. With limited spare production capacity OPEC abandoned its price band in 2005 and was powerless to stem a surge in oil prices which was reminiscent of the late 1970s.[7]
[edit] Price forecast
- UBS - The firm boosted its oil price outlook by 14% to an average of US$74 per barrel in 2008 and by 18% to US$73.25 for 2009. For the long-term, oil is expected to average US$75, compared to US$51 previously.[8]
- Citigroup raised its long-term crude oil and natural gas forecast and said a weakening U.S. dollar contributed to the recent record oil prices. The brokerage raised its long-term forecast for crude oil to $60 per barrel from $55 and that for natural gas to $7.50 per thousand cubic feet from $7.0. Citigroup also adjusted its 2008 WTI oil forecast to $70 a barrel from $60. For 2009, it has a forecast of $65 per barrel, the brokerage said in a research note.[9]
- National Australia Bank Ltd. raised its forecast for average 2008 U.S. benchmark crude-oil prices to about $85 a barrel, up 31 percent from a September estimate, due to rising demand and production restrictions.[10]
- JP Morgan raised its 2008 Brent oil price forecast to $80 per barrel from $68 per barrel and 2009 forecast to $75 per barrel from $64 per barrel.[11]
- EIA Retail prices for petroleum products are expected to be higher in 2008 than last year, due to higher average crude oil prices. Both motor gasoline and diesel prices are projected to average more than $3 per gallon in 2008. The monthly average gasoline price is projected to peak near $3.40 per gallon this spring.[12]
- Goldman expects U.S. crude (CLc1> to average $95 a barrel in 2008, up $10 from the previous projection, it said in its outlook for 2008. The price could reach $105 by the end of 2008, it said.
- Barclays Capital has raised its U.S. oil price forecast for 2008 to $77 a barrel, up $3.10 from its previous forecast after a rally in prices this week to record highs above $82. [13]
- Raymond James raised its outlook on 2008 crude oil prices to $80 per barrel WTI from $70 per barrel WTI and set its 2009 forecast at $85 per barrel.[14]
[edit] External References
- ↑ http://omrpublic.iea.org/
- ↑ http://www.opec.org/library/FAQs/CrudeOil/q4.htm
- ↑ http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/oil_market_basics/supply_text.htm#Global%20Oil%20Supply%20by%20Region EIA
- ↑ http://www.eia.doe.gov/steo#Global_Petroleum_Markets EIA Forecast
- ↑ http://omrpublic.iea.org/omrarchive/16jan08dem.pdf
- ↑ http://www.eia.doe.gov/steo#Global_Petroleum_Markets EIA Forecast
- ↑ http://www.wtrg.com/prices.htm
- ↑ http://seekingalpha.com/article/54965-ubs-s-increased-commodity-forecast-boosts-encana-suncor-and-cnq
- ↑ http://uk.reuters.com/article/oilRpt/idUKWNA770120071015
- ↑ http://www.topix.com/com/nab/2008/02/national-australia-bank-increases-2008-oil-price-forecast-on-demand-opec
- ↑ http://uk.reuters.com/article/oilRpt/idUKWNA340220080110
- ↑ http://www.eia.doe.gov/steo
- ↑ http://uk.reuters.com/article/businessNews/idUKSP11782120070920
- ↑ http://uk.reuters.com/article/idUKWNA551120071001
