RGIPT MBA Programme 2010-12

Course: Introduction to Oil and Gas

Faculty : C K Sengupta

- Study Note- 1.

Evolution of Petroleum Industry

To understand the Petroleum Industry it is important to find out in detail what petroleum
is used for, the process the earth has to go through to produce petroleum, how it is
extracted and processed, how it is transported, stored and distributed for industrial and
mass consumption. Finally how long everyone can rely on the existence of petroleum as
energy source and if there are any alternatives to this important natural resource.

Before going into how petroleum is created and processed, it is important to look at just
how much petroleum is relied on in the present. Looking at the average day of a person
living in developed/developing countries the reliance on petroleum is very high and can
be seen right away in every facet of one’s life. Waking up in the morning and filling a
tea/coffee pot with water, the pipes/ tubes through which water travels may be petroleum
based plastic, in heating the water usage of gas or energy is derived from petroleum.
Then, on travelling/driving to work, the wheels to the vehicles are made of rubber which
is petroleum based, the road is paved with asphalt another form of petroleum and the fuel
in the engine driving the vehicle is petroleum based. At work while writing, the graphite
in the pencil is made with petroleum.

It is important to note that because of the many uses of petroleum that a whole lot is
consumed everyday. It is so much in demand that the petroleum has become a vital
commodity playing a significant role in world politics and economy. Significantly
consumed in the form energy as transportation fuel, power generation, heating and
lighting fuel, industrial use as feedstock for manufacturing for Fertilizers and
Petrochemicals etc; using asphalt for road building and many other uses in our day-to-
day life, including rubber, plastic and waxes petroleum has become an indispensable
commodity.

In view of the wider consumption base of petroleum based products, price fluctuations in
petroleum market impacts world economy. Particularly, the predicament is most faced by
oil importing countries. However, the high petroleum price generally leads to higher
investments in search of more resources. As a result, the activities leading to expansion of
petroleum industry is observed most during the period when oil prices are high.

1
How petroleum is created?

Petroleum is a natural resource that is created within the earth and it generally refers to
crude oil, its derivatives and natural gas. These are mixtures of hydrocarbons which are
molecules of hydrogen and carbon atoms found in the small, connected pores spaces of
some underground rock formations. Petroleum reservoirs are generally thousands of feet
below the surface. In order to understand how long petroleum will be available, it is
important to first look at the process through which the Earth creates petroleum to see if
the rate it is produced at is anywhere near the rate it is consumed at and if the process can
be replicated through man-made methods.

There are two theories on how petroleum is created within the earth, the more dominant
theory being the biogenic theory. When something dies, it either decomposes and is
broken down into Carbon Dioxide and Water or, in what is the basis of biogenic theory, it
is buried beneath layers of sedimentary putting it under high pressure and heat causes the
organic matter to break down and create two products, kerogen and bitumen. A process
called cracking, a process where larger organic molecules break down into simpler
molecules, then takes place hundreds of meters down in the earth due to the pressure and
heat. The petroleum then moves through the rock and settle into reservoirs creating oil
pools, several of which make up an oil field. The rate at which it migrates at is generally
1-1000 kilometers per million years, depending on several factors including the amount
of pressure and the permeability of the rock.

The second theory as to how petroleum is created is called abiogenic. The theory
suggests that petroleum is created from non-biological sources deep down in the Earth
that is there from when the Earth was created or has been sub ducted there. The materials
necessary to create petroleum are within the Earth, so it stands possible that the correct
conditions to create petroleum lie deep within the Earth. After these materials breakdown
the process is the same as in biogenic theory. It is also notable that hydrocarbons
(methane and butane for example) are found on other planets, which means that they can
definitely be created without life. Most scientists accept that both theories contribute, but
that a vast majority believes petroleum is created from organic carbons. The amount of
time that it takes from start to finish is generally in the range of millions of years.

Thus, over millions of years petroleum has formed from the remains of animals and
plants lived millions of years ago in a marine (water) environment before the dinosaurs
and the remains were covered for many years by layers of mud. Heat and pressure from
these layers helped the remains turn into what we today call crude oil.

Types of hydrocarbons

Different mixtures of hydrocarbons have different uses and different economic values. It
is necessary to recognize some basic types of hydrocarbon mixtures. Crude oil refers to
hydrocarbon mixtures produced from underground reservoirs that are liquid at normal
atmospheric pressure and temperature. Natural gas refers to hydrocarbon mixtures that

2
are not liquid, but gaseous, at normal atmospheric pressure and temperature. The gas
mixtures consist largely of methane (the smallest natural hydrocarbon molecule
consisting of one carbon atom and four hydrogen atoms). Natural gas usually contains
some of the next smallest hydrocarbon molecules commonly found in nature:

Ethane (C2H6),
Propane (C5H8),
Butane (C4 H10), and
Natural gasolines (C5H12 to C10H22).

These four types of hydrocarbons are collectively called natural gas liquids (NGL) which
are valuable feedstock for the petrochemical industry. When removed from the natural
gas mixture, these larger, heavier molecules become liquid under various combinations of
increased pressure and lower temperature.

Liquefied petroleum gas (LPG) usually refers to an NGL mix of primarily propane and
butane typically stored in a liquid state under pressure. LPG is the fuel in those
pressurized tanks used in portable cylinders.

Crude oil by Quality Type:

Crude oil can be of many different mixtures of liquid hydrocarbons. Crude oil is
classified as light or heavy, depending on the density of the mixture. Density is measured
in API gravity. Heavy crude oil has more of the longer, larger hydrocarbon molecules
and, thus, has greater density than light crude oil. Heavy crude oil may be so dense and
thick that sometimes becomes difficult to produce and transport to market. Heavy crude
oil is also more expensive to process into valuable products such as gasoline.
Consequently, heavy crude oils sell for much less per barrel than light crude oils but
weigh more per barrel. The residual products from heavy crude oil compete with coal.

Both natural gas and crude oil may contain contaminants, such as sulphur compounds and
carbon dioxide (CO2), that must be substantially removed before marketing the oil and
gas. The contaminant hydrogen sulfide (H2S) is poisonous and, when dissolved in water,
corrosive to metals. Natural gas and crude oil high in sulfur compounds are called sour
gas and sour crude oil as opposed to sweet crude oil or intermediate (between sour and
sweet). Some crude oils contain small amounts of metals that require special equipment
for refining the crude.

High quality, low sulfur crude oil is commonly used for processing into gasoline and is in
high demand, particularly in the western countries. Light sweet crude oil (Sulfur 0.5% or
less by weight and API gravity of 36 degrees or higher) is in most demand as it contains
a disproportionately large amount of lighter fractions that can be used to processing
gasoline, kerosene, and high-quality diesel. The term "sweet" originated because the low
level of sulfur provides the oil with a mildly sweet taste and pleasant smell.

3
The value of the crude oil depends on its characteristics. Low sulfur light crudes have
higher commercial value as it can be refined to get high value end use products.

Petroleum Industry Segments

The petroleum industry, commonly referred to as the oil and gas industry, has four major
segments:

1. Exploration and Production (E&P): The E&P activities are connected with the
exploration for underground reservoirs of oil and gas and production of the discovered
oil and gas using drilled wells through which the reservoir's oil, gas, and water are
brought to the surface and separated

2. Hydrocarbon Processing by which crude oil refineries and gas processing plants
separate and process the hydrocarbon fluids and gases into various marketable products.
Refined products may be processed further in "petrochemical plants" for making
petrochemicals.

3. Transportation, Distribution, and Storage by which petroleum is moved from the

producing well areas to the crude oil refineries and gas processing plants. Crude oil is
moved by pipeline, truck, barge, or tanker. Natural gas is moved by pipeline. Refined
products and natural gas are similarly transported by various means to retail distribution
points, such as gasoline stations and home furnaces. Many gas producing countries are
exporting natural gas across the oceans by chilling the mixture to a liquid state at -160
degrees centigrade for hauling in special tankers with high pressure, cryogenic
containers. This chilled gas is called liquefied natural gas (LNG).

4. Retail or Marketing which ultimately markets in various ways the refined products,
and natural gas to various consumers.

The E&P segment is sometimes called upstream operations, and the other three segments
are downstream operations. Companies having both upstream and downstream operations
are vertically integrated in the petroleum industry and, hence, are called Integrated. Other
companies involved in upstream only are referred to as Independents. The several largest
integrated petroleum companies are called Majors.

Petroleum Exploration and Production:

Oil and gas are discovered and produced through wells drilled down to the reservoirs. To
find oil there are several factors that are taken into account. Geological survey is the first
thing do to look for whether or not an area has all the necessary components to create oil.
This includes the following:

Source rock, rock that is usually limestone or shale and which 1% - 10% of its make- up
is organic;

4
Reservoir rock, rock which soaks up the oil almost like a sponge when the oil migrates
usually is sandstone, limestone or dolostone; a structural trap, which is a fault or a fold;

Finally, it has to be a certain depth within the Earth to ensure that it has had the necessary
pressure and heat. The oil exploration activities are initiated either in on shore or offshore
sites. The petroleum exploration ventures are highly capital intensive, requiring skilled
man, modern machines, technology. Drilling rigs are engaged for months/years and
despite many years of effort the chances of finding oil and the volume extractable are
difficult to predict until substantial investments have gone in. Historically, on finding
otherwise prospective area as per geological survey there is a 1 in 10 chance that a well
drilled in an area more than a mile from an existing well will have hydrocarbons, a 1 in
40 chance if it is in a completely new area. Geologists depend on clues such as
rock outcroppings to determine where crude oil or natural gas might be found. The best
indication is crude oil or natural gas seeping to the surface, but much can also be learned
from previous drilling in the area (if any), the characteristics and topography of rock
formations, and the similarities to other areas known to produce crude oil or natural gas.
Since the 1920s, the science of geophysics has provided an additional powerful tool, the
seismic survey, to develop a more complete “picture” of deeply buried rock formations.
Geophysicists can identify the structures most likely to contain petroleum, but the only
way to find out for sure is to drill a well.

Core samples are taken from the earth to tell if there are oil deposits in the area.Once
crude oil or gas is found and as per assessment of the exploratory well has sufficient
indication of commercial prospect, more numbers of wells are planned. In case of failure,
the effort has to be abandoned and the investment is treated as sunk cost.

An exploratory well is one drilled to discover or delineate petroleum reservoirs. A

development well is one drilled to produce a portion of previously discovered oil and gas.
A large producing reservoir may have one or more producing exploratory wells and
several producing development wells. Estimated volumes of recoverable oil and gas
within the petroleum reservoir are called oil and gas reserves. Reserves are classified as
proved, probable, or possible, depending on the likelihood that the estimated volumes can
be economically produced. Depending on the source, predictions on when the Earth will
run out of oil vary from as early as fifty years to over a hundred years. Running out is of
significant importance, especially considering how my people rely on petroleum,
however, another concern is how much cost will go up as the amount of petroleum left
goes down.

On successful exploration, the oil field is developed drilling a number of development

wells which produces oil and gas and the commercial activities commence. The wells are
then connected with pipelines to take oil and gas mixtures to collection and separation
units and after treatment (removal gas, water etc.) finally moved to storage tanks.

Refining

From E&P Company’s storage crude oil is sent to Refineries through cross-country
pipelines/oil tankers (ships/barges) where it is separated by weight and boiling point.

5
Many of the heavier molecules are then put through cracking plants and turned into
lighter molecules - like cooking gas, motor fuel (petrol/gasoline). The process of
improving yields from crude oil has developed over the years. While the primary
processing of crude oil is done in Crude Distillation Unit (CDU) and then in Vacuum
Distillation Unit (VDU), the secondary processing is done to further refine and enhance
the yield and to convert heavy ends to high value products. In Refining several processes
are introduced to improve product quality and to produce environment efficient fuels.
The important ones are Fluid Catalytic Cracking, Hydro cracking and Coking. Also,
quality improvements are done through Reformers, Desulfurization unit.

From the Refineries we get numerous useful products:

 Transportation fuels, such as gasoline, diesel, naphtha, jet fuel,

 Heating fuels, such as liquefied petroleum gas, heating oil, Fuel oil

 Refinery residual fuel oil and naphtha can be burned to generate electricity
energy,
 Petrochemicals feeds such as propane, naphtha

Measuring Units in Petroleum:

A barrel of crude oil equates to 42 U.S. gallons or appr 160 litres. When crude oil is
measured by weight, such as metric tons, a metric ton of crude oil approximates 7.33
barrels of crude oil, but the ratio varies since some crude oil mixtures are heavier per
barrel than others. By volume when expressed in kiloliters it is equivalent to 6.29 barrels.

The natural gas is measured by the amount of energy or heating potential when burned,
generally expressed in million British thermal units (mmBtu) and by volume, generally
expressed in - thousand cubic feet (mcf),
- million cubic feet (mmcf),
- billion cubic feet (bcf), or
- trillion cubic feet (tcf).

Gas volumes are necessarily measured at a standard pressure and temperature, typically
at an atmospheric pressure base of 14.65 to 15.025 pounds per square inch absolute (or
psia) and a temperature of 60 degrees Fahrenheit. The ratio of mmBtu (energy) to mcf
(volume) varies from approximately 1:1 to 1.3:1. The more natural gas liquids in the gas
mixture, the higher the ratio, the greater the energy, and the "richer" the gas.

Volumes of crude oil and natural gas combined are often expressed in barrels of oil
equivalent (boe) whereby gas volumes in mcf are converted to barrels on the basis of
energy content or sales value. In general, approximately an energy conversion ratio of 6
mcf of gas have the same 5.8 mm Btu energy content as one average barrel of oil.
However, one mcf of gas might be selling for $7.50 when oil is selling for $75 per barrel
whereby ten mcf equate to one barrel of oil, based on the given sales prices. Thus, value-
wise 10 mcf of gas equals to 1 boe.

6
Alternative Fuels:

As petroleum becomes more scarce and expensive, more investment flows to find
alternate fuels. There are several alternative energy sources and other types of materials
to be used that are not petroleum based. As far as fuel for cars is concerned, there have
already been cars built based on biodiesal, electricity, ethanol, hydrogen. Biodiesal is a
mixture that reduces the amount of petroleum used, electricity is used in several manners
to reduce or eliminate petroleum usage, ethanol is made from crops and can reduce or
eliminate petroleum usage, and hydrogen can be used to reduce or eliminate petroleum
usage. Most plastic uses can be replaced by glass or paper. The world may have to find
something else to pave its roads with to make wheels with, but with rising technology and
a recent push for studies into alternative energy sources, the transition should be pretty
smooth.

Historical Background of Petroleum Industry

In order to understand the commercial and business aspects of the petroleum industry, a
brief review of the industry's history is necessary.

In ancient history, pitch (a heavy, viscous petroleum) was used for ancient Egyptian
chariot axle grease. Early Chinese history reports the first use of natural gas that seeped
from the ground; a simple pipeline made of hollowed bamboo poles transported the gas a
short distance where it fueled a fire used to boil water. Seventeenth century missionaries
to America reported a black flammable fluid floating in creeks. From these creeks, the
locals skimmed the crude oil, and then called rock oil, for medicinal and other purposes.
Later, the term rock oil was replaced by the term petroleum from petra (a Latin word for
rock) and oleum (a Latin word for oil). Eventually, the term petroleum came to refer to
both crude oil and natural gas.

By the early 1800s, whale oil and animal fat were widely used as lamp fuel, but the
supply was uncertain and being quite inconvenient people began using alternative
illuminating oils called kerosene or coal oil extracted from mined coal, mined asphalt,
and crude oil obtained from surface oil seepages. At the same time, U.S. settlers were
drilling wells to produce salt brine for salt production and occasionally encountered crude
oil mixed with the produced brine. In 1856, George Bissell, an investor in the
Pennsylvania Rock Oil Company, decided to drill similar wells to find and economically
produce crude oil from which valuable kerosene could be extracted.

The petroleum exploration and production industry may be said to have begun in 1859.
While there is mention of an oil discovery in Ontario, Canada, in 1858, it is generally
recognized that Bissell's company had the first commercial oil drilling venture in 1859
near Titusville, Pennsylvania. Colonel Edwin L. Drake, a retired railroad conductor,

7
supervised the drilling activity on behalf of the Pennsylvania Rock Oil Company. A
steam-powered, cable-tool rig with a wooden derrick was used to drill the 69-foot well,
which produced approximately five barrels of crude oil per day. Soon after the Drake
well began oil production, other wells were drilled in the Titusville area using cable-tool
rigs, and the supply of oil increased dramatically, causing a decline in the price of crude
oil from $10 per barrel in January 1860 to about ten cents a barrel two years later. Shortly
thereafter, a number of refineries began distilling valuable kerosene from crude oil,
including facilities that had previously extracted kerosene from other sources. For
transportation of crude oil which was a problem in earliest days of oil production,
wooden barrels (with a capacity of 42 to 50 gallons) were used and hauled by horse-
drawn wagons to railroad spurs or river barge docks.

The pipelines came into existence in the 1860s; the first line was made of wood and was
less than a thousand feet long. Iron made oil pipelines originated when the Oil Transport
Association first constructed a 2-inch (51 mm) wrought iron pipeline over a 6-mile
(9.7 km) track from an oil field in Pennsylvania to a railroad station in Oil Creek, in the
1860s. Growth in the physical production of petroleum corresponded with growth in the
size and investment of corporations engaged in producing and refining petroleum. John
D. Rockefeller; in 1865 acquired the entire interest in a petroleum company and in 1870
merged his firm with four other companies to form the Standard Oil Company with the
goal to become paramount in the refining, transporting, and marketing of petroleum.
Shortly after the merger, he also moved into the area of oil production.
By the 1880s Standard controlled approximately 90 percent of the refining industry in the
country and dominated the global petroleum industry. Standard's control of refineries as
well as its ownership of railroads, pipelines, and marketing outlets forced most petroleum
customers in the United States to purchase their products from the company. Standard's
dominance attracted federal and state antitrust regulators. In 1901, the Texas legislature
passed laws preventing Standard's involvement in new ventures. All these had a great
impact on Standard Oil Company which led to its break-up in 1911-1915 into several
companies. They include:

 Standard Oil of New Jersey (i.e., Exxon) and Standard Oil of New York (i.e.,
Mobil) that merged in 1999 to form ExxonMobil, the largest U.S. petroleum
company and a world giant;
 Standard Oil of California (now Chevron, the second largest U.S. petroleum
company);
 Standard Oil of Indiana (subsequently renamed Amoco) and Standard Oil of
Ohio, both now a part of BP Amoco, following merger with or acquisition by
British Petroleum to create a world giant rivaling ExxonMobil;

 Continental Oil (now Conoco, eighth largest U.S. oil company)

By that time the Shell Group of England and Royal Dutch of Netherlands merged and
succeeded Standard Oil as the world's largest oil company. The group was an unusual
amalgamation that was owned 60 percent by the Netherlands’s Royal Dutch Company

8
and 40 percent by England's Shell Transport and Trading Company. Royal Dutch had
made its fortunes in oil production in the Dutch East Indies, now Indonesia. Shell had
prospered in global oil trading and transportation before expanding into production and
refining. In May 1901, William Knox D'Arcy was granted a concession by the Shah of
Iran to search for oil which he discovered in May 1908. This was the first commercially
significant find in the Middle East. On 14 April 1909, the Anglo-Persian Oil Company
(APOC) was incorporated to exploit this. In 1935, it became the Anglo-Iranian Oil
Company (AIOC). The large source of oil in Iran fueled the British Military and helped
determine the outcome of World War 1.

The AIOC became the British Petroleum Company in 1954. BP continued to operate in
Iran until the Islamic Revolution in 1979. The new regime confiscated all of BP's assets
in Iran without compensation, finally closing BP's 70-year presence in Iran.

TURNING POINT IN THE 1920s

New demands for petroleum were created in the 1920s; petroleum products were used to
generate electricity, operate tractors, and power automobiles. With increased competition
in the oil industry and an increased demand for petroleum products (created by the
growing number of automobiles), the oil industry was able to increase production to meet
the greater demand without a sharp rise in price.

The search by American companies for foreign oil began around 1920 and was
encouraged by the United States government to make up the shortage of oil developing
domestically. By the middle of the 1920’s approximately 35 companies had invested
upwards of $1 billion exploring for and developing reserves in the Middle East, South
America, Africa, and the Far East. However, the discovery of the giant East Texas oil
field in 1930 created a world surplus of oil, and companies slowed their operations in
foreign countries. Some companies did continue to search for oil in the Middle East
during the 1930s, and significant discoveries were made, especially in Saudi Arabia and
Kuwait.
The major oil companies operating in the Persian Gulf till 1960’s were known as ‘seven
sisters’ out of which Exxon (New Jersey), Mobil (New York), Chevron (California), Gulf
(Texas) and Texaco (Texas) were from USA, and British Petroleum (BP) and Royal
Dutch/ Shell were form Europe. Out of these two European companies, BP was
operating in Iran and Russia and Shell in Venezuela.

Iran nationalized its oilfields in 1951, which resulted in oil boycott by the western oil
companies except BP . Within two years the blockade was over and the western oil
companies started their oil production in Iran along with BP until the Islamic Revolution
in 1979. Again, the Suez crisis in 1956 resulted in bitter relationships between the oil
producing nations in the Middle East and the seven sisters.

WORLD WAR II IMPACT:

9
The United States started to recover from the economic depression by the mid-1930s. The
onset of World War II in 1939 accelerated the pace of economic recovery. Compared
with World War I, World War II used more mechanized equipment, airplanes,
automotive equipment, and ships, all of which required huge amounts of petroleum. The
industry easily met the United States' and allies' demands for petroleum. However, as
World War II progressed, the U.S. and British governments feared an eventual shortage
of crude oil. In 1943 the U.S. government even proposed buying from Chevron and
Texaco the petroleum company that became Saudi Aramco, now the world's largest oil
producing company.

During and after World War II, huge capital investments were made to further develop
the enormous reserves found in the Persian Gulf area. Chevron, joined later by Texaco,
and still later by Exxon and Mobil, owned the Arabian-American Oil Company or
Aramco, which developed the giant Saudi Arabian oil fields and downstream
infrastructure. Today the company is owned by Saudi Arabia and has been renamed
Saudi Aramco. Other companies explored, developed, and produced oil in other
countries, but in the first half of the twentieth century, the United States typically
produced and consumed from 50 percent to 75 percent of the world's annual oil
production.

GROWTH OF THE NATURAL GAS AND PETROCHEMICAL INDUSTRIES

At the end of World War II, two events contributed to the tremendous growth in the
natural gas industry. Natural gas had previously been discovered in large quantities in
Texas, Louisiana, and other southwestern states; however, it was difficult to transport the
gas long distances. This problem was alleviated by the development of a new technique
for welding large pipe joints; gas under high pressure thus became transportable to the
heavily populated Midwestern and eastern regions of the country. Also, after World War
II, the country witnessed the birth of the petrochemical industry, which used natural gas
liquids for some of its basic raw materials.

THE 1970s: PRICES SKYROCKETED

Beginning in October 1973, Arab OPEC members cut off all oil exports to the U.S. in
response to the U.S.'s proposed $2.2 billion military aid package to Israel, which was
reeling from surprise attacks by Egypt and Syria that month. The price for Saudi Arabian
oil rose dramatically— $1.80 per barrel in 1971, $2.18 in 1972, $2.90 by mid-1973,
$5.12 in October 1973, and $11.65 in December 1973. Thereafter, world crude oil prices
increased slowly through 1978 when Saudi oil sold for $12.70 per barrel. The 1979
Iranian Revolution caused prices to again escalate rapidly, peaking at $42 per barrel for
some U.S. crude oil in December 1979.

During the 1960s and early 1970s, some people warned of petroleum shortages, but their
warnings went unheeded until the 1973 Arab oil embargo. Because of the embargo, a
large portion of the oil normally imported by the Western countries was cut off for

10
several months, and citizens were faced with a shortage of gasoline and other petroleum
products and with increasing prices.

FORMATION OF OPEC

During the 1950s and the 1960s, there was ample world oil production, with prices
remaining stable and averaging approximately $3.00 per barrel. However, these two
decades also saw an increased U.S. reliance on imported crude oil and refined products.
In 1950 ten percent of oil used in the United States was supplied by imported oil and
refined products; by 1970 that percentage had increased to 23 percent. In 1960 the
Organization of Petroleum Exporting Countries (OPEC) was formed by Saudi Arabia,
Kuwait, Iran, Iraq, and Venezuela. Later, eight other countries joined OPEC—the United
Arab Emirates and Qatar in the Middle East; the African countries of Algeria, Gabon,
Libya and Nigeria; and the countries of Indonesia and Ecuador. Ecuador withdrew in late
1992. By 1973 OPEC members produced 80 percent of world oil exports, and OPEC had
become a world oil cartel. Member countries began to nationalize oil production within
their borders.

Presently OPEC Members account for about 40% of world oil production, and about 2/3
of the world’s proven oil reserves. In March 1971, the power to control crude oil prices
shifted from the United States to OPEC. For better reflection of the average quality of
crude oil in OPEC Market, member countries decided to use the weighted average prices
based on production and exports to the main markets for these oil streams to develop an
OPEC reference price of OPEC “BASKET” price of crude oils. This became also a tool
for monitoring the world oil market conditions.

---0----

11