CRUDE OIL PRICES FUNDAMENTALS AND

TECHNICALS

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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.

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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 world s 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.
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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:

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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.
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....Classification

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
Gulf
Venezuela

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35-38
25-28
15

...Classification

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.

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Fundamental Factors Affecting Crude

Oil Prices

World oil demand

World oil supply
Weather conditions
GDP
Government policy
Political conditions
Futures market

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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.

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