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Fundamental analysis of crude oil

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Recent crude oil price increases are an extension of oil market developments originating in the
1990s. At that time, relatively high inventories and ample surplus production capacity served to
limit oil price fluctuations. When spot market prices moved up or down, futures contracts
requiring delivery in distant months generally traded close to $20 per barrel, consistent with a
market expectation that producers would ensure that spot prices would eventually return to that
level. However, as leading OPEC members shifted toward a tight inventory policy and global oil
demand recovered from the slowing effect of Asia¶s financial crisis, the global market balance
tightened and inventories declined sharply at the beginning of the present decade. Oil prices rose
to $30 per barrel in what might be seen as the first leg of the upward trend. By 2003, inventories
were drawn down sufficiently such that subsequent increases in global demand stretched oil
production to levels near capacity. The large, unexpected jump in world oil consumption growth
in 2004, fostered by strong growth in economic activity in Asia, reduced excess production
capacity significantly. Now, in mid-2008, despite high prices, world oil consumption grow
thermions strong, overall non-OPEC production growth continues to slow, and OPEC oil
production has not grown sufficiently to fill the gap. In addition, geopolitical risks create
considerable uncertainty about future supplies.

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The various types of crude oils are classified according to their geographical originations, sulfur
level and also the density of the oils in some cases. For differentiation depending upon the
gravity of oils, the American Petroleum Institute (API) provides with a basis to measure it¶s
density, which is called the API gravity. The crude oils are then termed as µheavy¶ or µlight¶ oil.
They are also divided as per the sulfur level present in them, as µsweet¶ or µsour¶. But, mostly,
crude oil is classified on the basis of location only as oils from different locations have different
characteristics and they are also named after the places of origin. The main types of crude oil
according to their geographic locations are

1.c North Sea Crudes ± Considered as bench mark

„c API gravity ± around 38.5 degrees

„c Sulfur level - 0.36%

Examples - Brent, Forties, Osberg, North Sea Basket, Ekofisk, Statfjord and Flotta

2.c West African Crudes ±

„c API gravity - around 35 degrees

„c Sulfur level ± 0.2%
„c Examples - Bonny Light, Qua Iboe, Brass River, Escravos, Forcados and Cabinda

3.c Persian Gulf Crudes ±

„c API gravity ±around 37 degrees

„c Sulfur level ± 1.08%
„c Examples - Dubai and Oman assessments, Murban, Lower Zakum, Qatar Land, Qatar
marine and Banoco Arab Medium
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Petrol and diesel are probably the first things that spring to mind when one thinks of the uses of
oil. Because of its liquid nature and the power/mass ratio, there is nothing else that can easily
replace oil. Cars can be adjusted to run on electricity or hydrogen but these are wasteful of
energy and unsuited to the future. Road transport can replaced to a certain extent with public
transport and oils from plants, and ships could reduce their energy usage by modern sails





 

About 42% of primary energy (oil, natural gas, coal) is used to generate electricity and if oil is
our society¶s lifeblood, then electricity is its oxygen. As seen by the blackouts in east USA and
Canada in August 2003, even a few days without electricity and we grind to a halt. There are
alternative ways of generating electricity but these make up only a small amount of electricity
sources at the moment (see Chart S1), over three-quarters comes from oil, gas and coal.
Hydroelectric is limited by availability of water and nuclear power is out of favour. The only
option left is renewable and these are many years away from being developed enough. We
should have been pouring money into research in the 1970s and 1980s?
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One important use for oil which many people are unaware of is agriculture, and not just to fuel
tractors and combine harvesters. Fertilizers and herbicides are oil- and gas-based, and farmers
use animal feeds that come from around the world?
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It is often forgotten by many people that plastic products are based on petroleum. A glance
around any room will show how pervasive they are. There are many other oil-based household
objects. The following is a list of just some products that may disappear with oil. Air
conditioners, ammonia, anti-histamines, antiseptics, artificial turf, asphalt, aspirin, balloons,
bandages, boats, bottles, bras, bubble gum, butane, cameras, candles, car batteries, car bodies,
carpet, cassette tapes, caulking, CDs, chewing gum, cold, combs/brushes, computers, contacts,
cortisone, crayons, We are used to everything being cheap and freely available. Like oil itself, it
is not that these things will disappear but that their costs will soar. Our present lifestyle will
inevitably change.
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Factor affecting fundamental analysis of crude oil:-

There are various factor affecting of crude oil

(1)cDemand
(2)cSupply
(3)cInventory
(4)cProduction
(5)cConsumption

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The key driver of oil demand has been robust global economic growth, particularly in emerging
market economies, world gross domestic product (GDP) growth (with countries weighted by oil
consumption shares) has averaged close to 5 percent per year since 2004, marking the strongest
performance in two decades?

In addition to the pace of world economic activity, oil demand has been further supported by the
composition of growth across countries. China, India, and the Middle East use substantially more
oil to produce a dollar¶s worth of real output than the United States. These economies are among
the fastest growing in the world; together they have accounted for nearly two-thirds of the rise in
world oil consumption since 2004. Moreover, these economies still consume relatively little oil
on a per capita basis. Over the longer term, as these economies continue to develop and incomes
rise, per capita energy use is likely to increase further.
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In united states was oil consumption per capita is very high
as compare to another countries approximately 25(barrels per person) and middle east countries
consumption is approximately 9.0barrels per person and china was oil consumption
approximately 2 barrels per person and india was very low oil consumption approximately 1.0
barrels per day.
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US 25
Middle east 9
China 1.5
India 1.0

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The rise in global economic activity has been accompanied by corresponding growth in world oil
consumption. Since 2003, world oil consumption growth has averaged 1.8 percent per year,
representing an estimated 1 million barrels per day in 2008. Non-member countries of the
OECD, especially China, India, and the Middle East, represent the largest part of this growth
Despite higher prices, growth in world oil consumption remains strong?
Crude oil demand is increasing and will keep up on the increasing following years. The
total global sale of crude oil in the financial year 2002/2003 was 475 million liters at a price of
$48 per barrel. In the following year the demand kept increase despite rise of price. In the
financial year 2003/2004, a 541 million liter crude oil was sold at a price of $48 per barrel. And
in 2004/2005the sales increase to 579 million liter at a price of $70 per barrel the demand kept
increasing in the following year, however there is a limited supply of crude oil, 2005/2006, 743
million liter of crude oil was sold at a $88 per barrel. And 2008 year demand of crude oil was
increase 747 million liter and day by day crude oil demand was increasing.
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there is two major countries are US , China and other country are consumption oil in daily, in
year of 2003 crude oil consumption growth is 1.6 million barrels per day. In year of 2004 world
oil consumption is 2.7 million barrels per day and increase by 168%. But in next year world oil
consumption is down trend and in year 2005 oil consumption was 1.3 million per barrels per day
and decrease by previous year. And year 2006 oil consumption was 1.0 million barrels per day
and decrease by previous year. In year of 2007 world oil consumption was 0.8 million barrels per
day and also decrease previous year. But estimated year in 2008 also crude oil consumption is
increase1.0 million barrels per day.

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In oil consumption growth by country chine was lead in another countries china oil consumption
growth is 2.44 and Saudi arabia was second position in oil consumption growth rate was 0.71
and india was third position in oil consumption growth rate was 0.46 and iran growth rate was
0.39 and united states growth rate was 0.37, brazil growth rate was 0.31, Russia growth rate was
0.26, Iraq growth rate was 0.20, Canada growth rate was 0.15, in last Singapore growth rate was
0.15. these all are the oil consumption growth (millions of barrels per day).

(2) 

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cccccccccccccccccccccccccccccccccccccccccccccccccccccccccWhile global demand has remained strong, overall non-OPEC
production growth has slowed. In the past three years, non-OPEC production growth has been
well below rates seen earlier this decade. World oil consumption growth has simply outpaced
non-OPEC production growth every year since 2003. This imbalance increases reliance upon
OPEC production and/or inventories to fill the gap. However, since2003, OPEC oil production
has grown by only 2.4 million barrels per day while the ³call on OPEC´(defined as the
difference between world consumption and non-OPEC production) increased by 4.4million
barrels per day. As a result, the world oil market balance has tightened significantly.

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in 2003 world oil consumption growth was 1.6 as compare as non opec production growth was is
1.0 and in year 2004 world oil consumption growth was 2.7 as compare as non opec growth was
decrease 0.9 and in year 2005 world oil consumption growth is decrease is 1.3 as compare non-
opec production growth was(0.1) , in year 2006 world oil consumption growth was also decrease
1.0 as compare as non opec production growth is 0.2 , in year 2007 world oil consumption
growth was also decrease 0.8 as compare as non opec production growth was increase 0.4.

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World surplus production capacity remains low (the
estimated 1.35 million barrels per day in June 2008is equivalent to less than 2 percent of
consumption, an amount well below the 1996-2003 annual average of 3.9 million barrels per
day). This puts upward pressure on prices and leaves world oil markets vulnerable to supply
disruptions. (Figure7) In addition, this surplus capacity is highly concentrated in a few countries,
with Saudi Arabia holding almost all of this capacity. Without significant surplus capacity
market participants can no longer rely on increased production from key members of OPEC to
offset supply disruptions and restore balance without the need for significant price changes (as
was the case in the 1990s). The combination of these factors means that prices react strongly to
actual or perceived supply disruptions.
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The
first 200,000,000,000
barrels of world oil were produced in 109 years from 1859 to 1968. Since that time world oil production
rates have stabilized at a rate of about 22,000,000,000 barrels a year.

The table indicates that the most likely total world oil endowment is about 2,390,000,000,000
barrels. Of this amount, 77 percent has already been discovered and 30 percent has already been produced
and consumed. If this estimate proves to be reasonably accurate, current relatively stabilized world oil-
production volumes could be sustained to about the middle of the 21st century, at which time a shortage
of conventional oil resources would force a production decline
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cccccccccccccccccccccccccccccccThe Middle East is thought to have had an estimated 41 percent of the world¶s total oil
endowment. North America is a distant second but has already produced almost half of its total oil.
Eastern Europe, because of the large deposits in Russia, is well endowed with oil. Western Europe is not,
with most of its oil under the North Sea. Likewise, Africa, Asia, and South America are thought to have
only relatively moderate amounts of oil. It is interesting to note that a large undiscovered oil resource is
believed to exist in North America, which has many frontier basins. Both the Middle East and eastern
Europe, however, are also thought to contain significant oil prospects.

 9
 

OECD stocks were at record lows in 2003, following a major strike by oil workers in Venezuela.
Preliminary OECD inventory data for the first part of 2008 shows that OECD stocks have again
fallen below levels seen in 1996-2002. Because oil use has been growing over time, inventories
are even tighter when considered on a ³days of supply´ basis (defined as dividing inventories by
the level of consumption).In addition, U.S. inventories for crude oil and key petroleum products
are relatively low. After remaining relatively high for much of 2006 and the first half of 2007,
U.S. crude oil inventories have fallen toward the bottom end of the average range. Crude oil and
petroleum product stocks in other OECD regions exhibit the same declining trend.



 



There is currently a high degree of uncertainty in world oil markets due to fears about the
adequacy of oil supplies in the future. Current world oil supplies are highly concentrated, and
much of those supplies are held by nations that limit access to private investment, thereby
preventing full development of production through enhanced expertise and technology. In 2007,
the top 10 oil producers represented about half of total world production. In addition, geopolitical
risk surrounds many of these top producers, either because of current supply disruptions (Iraq,
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Nigeria) or the perceived threat of a disruption (Iran, Venezuela). Finally, as noted previously,
there is little surplus production capacity available to offset any disruption.
Supply disruptions are a frequent occurrence in the oil industry. During the
past 24 months, there have been almost two dozen supply disruptions, lasting from a few days to
many weeks, which affected world oil production and exports. These disruptions were caused by
power failures, worker strikes, pipeline leaks and explosions, cyclones and hurricanes, saboteurs,
and civil wars. More than half of these disruptions resulted in oil production outages exceeding
100,000 barrels per day. The most significant of these to oil markets resulted from the ongoing
strife in Iraq and Nigeria. These disruptions have varied in size over time, with Iraq losing more
than 500,000 barrels per day of exports in March 2008 and Nigeria reaching more than 1.4
million barrels per day of shut-in production at one point in April 2008.
Actual supply disruptions directly affect world oil markets due to a loss of
physical barrels available to the market. Concern over the impact of potential supply disruptions
is reinforced by the limited amount of spare production capacity available. As long as potential
disruptions, either realized (as in Iraq and Nigeria) or perceived (as in concerns about the
potential loss of supply from Iran), exceed the amount of additional production capacity that can
be brought online quickly, geopolitical concerns will weigh heavily on oil markets.

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Middle east was production of crude oil 23 million per barrels per day, and in future year 2030
should be increase by 32 million per barrels per day. So year to year increase in crude oil
production. West Africa was production of crude oil 4.0 million per barrels per day, and in future
year 2030 should be increase 6.0 million per barrels per day. North Africa was production of
crude oil 4.0 million per barrels per day, and in future year 2030 should be increase 5.5million
per barrels per day. South America was production of crude oil 3.0 million per barrels per day ,
and in future year 2030 should be increase 3.1 million per barrels per day. Asia was production
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of crude oil 1.2 million per barrels per day but in future in year 2030 should be decrease 1.1
million per barrels per day.

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Russia was top of the crude oil production in year 2005, Russia was production of crude oil 9.0
million per barrels per day in year 2005, and in future Russia should be production of crude oil
increasing 13.7million per barrels per day. United states was crude oil production 8.1 million
barrels per day and, in future United states should be increase in production of crude oil in year
9.9 million per barrels per day. Asia was production of crude oil 7.6million per barrels per day
and, in future Asia should be produce crude oil 7.95 million per barrels per day. North sea was
production of crude oil in year 2005 4.4 million per barrels per day, in future 2030 North sea
should be produce crude oil 2.1 million per barrels per day, because of in north sea crude oil
reserve is decline level so in future crude oil production is decrease in North sea. Central south
America was produce crude oil in year 2005 4.95 million per barrels per day but in future 2030
Central south America should be produce crude oil 8.0 million per barrels per day. And last
Other non opec countries was produce crude oil in year 2005 6.3 million per barrels per day but
in year 2030 other non opec countries should be produce crude oil 5.75 million per barrels per
day. So day by day crude oil demand is increase for developing country and developed country
and day by day crude oil production is increase so many problem face in future for developed
country and developing country and crude oil price increase and increase so ultimately affecting
for developing country and go down economy.
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MAJOR OIL PRODUCERS OF THE WORLD

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Saudi Arabia, shown in is thought to have had the largest original oil endowment of any
country. The discovery that transformed Saudi Arabia into a leading oil country was the Al-
 " field. Discovered in 1948, this field has proved to be the world¶s largest, containing
82,000,000,000 barrels. Another important discovery was the Saffānīyah offshore field in
the <   . It is the third largest   in the world and the largest offshore. Saudi
Arabia has eight other supergiant oil fields. Thus, it has the largest oil reserve in the world, not to
mention significant potential for additional discoveries.
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ccccccccRussia is thought to possess the best potential for new discoveries. Also, it has significant
reserves. Russian oil is derived from many sedimentary basins within the vast country, while
Saudi Arabian fields, as well as many other Middle Eastern fields, are located in the great
Arabian-Iranian basin ( and 3). Russia has two supergiant oil fields, Samotlor and Romashkino.
Production from these fields is on the decline, bringing total Russian oil output down with them.
The best prospects for new Russian discoveries appear to exist in the difficult and expensive
frontier areas.
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ccccccccccccccNorth America also has many sedimentary basins; they are shown in Figure 4. Basins in
the United States have been intensively explored and their oil resources developed.
Cumulatively,
 
 

 has produced more oil than any other country but is still
considered to have a significant remaining undiscovered oil resource. Prudhoe Bay, which
accounted for approximately 17 percent of U.S. oil production during the mid-1980s, is in
decline. {$
 has produced only about one-fifth of its estimated total oil endowment. With
two supergiant fields (Cantarell offshore of Campeche state and Bermudez in Tabasco state) and
with substantial remaining reserves and resources, it will be able to sustain current production
levels well into the 21st century. Conversely, j   , with considerably smaller oil reserves and
most of its undiscovered resource potential in remote regions, is unlikely to be able to sustain
current production levels beyond the 1990s. Canada¶s largest oil field is Hibernia, discovered off
Newfoundland in 1979. This giant field has yet to be developed.
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The Middle Eastern countries of 9 %# & 
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original oil endowment in excess of 100,000,000,000 barrels. These countries have a number of
supergiant fields, all of which are located in the Arabian-Iranian basin, including Kuwait¶s Al-
Burqān field (). Al-Burqān is the world¶s second largest oil field, having originally contained
75,000,000,000 barrels of recoverable oil. Iraq possesses a significant potential for additional oil
discoveries?c
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