Oil Markets

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Oil Markets: Properties,
Production and Reserves
On many occasions we have seen traders buying presumably attractively priced crude, only to discover
it is landlocked, with limited transportation options, with only one localrefinery equipped to process it.
In such situations, a trader becomes a captive supplier of a refinery or a captive customer of a company
controlling transportation. This chapter will hopefully provide useful advice to traders and analysts
embarking on a study of this market. As in the case for all commodities, understanding the physical
layer of the industry is a precondition to being a successful trader and marketer.
CRUDE OIL AND ITS
PROPERTIES
Unlike natural gas, coal of a given variety and electricity, oil is not a homogenous substance – but rather a
mixture of different hydrocarbons, with physical and chemical differences related to the number of atoms of
carbon and hydrogen in each molecule, and the structure of the molecules (the way the atoms of carbon and
hydrogen are bonded together). Crudes produced in different locations have qualities dependent on the
proportions of different hydrocarbons and the presence of other substances, which are usually seen as
contaminants that often require complex and expensive processes of removal and disposal.
Physical properties and
classification of crudes
The most important physical and chemical characteristics of oil can be summarised through:

❏ gravity (density);

❏ sulphur content;

❏ total acid number (TAN);

❏ viscosity; and

❏ the percentage of vacuum residue (VR).

Other important properties of crude oils and refined products
include:
❏ water content;
❏ flash point;
❏ fire point;
❏ evaporation point;
❏ Reid vapor pressure (RVP);
❏ pour point; and
❏ volatile organic compounds (VOCs).
UNITS OF MEASUREMENT
A barrel of oil is probably one of the most widely accepted Anglo Saxon units of measurement across the
world. The world oil output is typically reported in millions of barrels per day (bbl/day). The abbreviation bbl
stands for blue barrel. According to energy industry folklore, in the early days of the industry oil was transported
by truckers along the dirt roads in Pennsylvania in old wine barrels with a capacity of 50 gallons.
OIL OUTPUT AND DEMAND
STATISTICS
A good starting point is the crude oil output information from the EIA, which publishes one of the
most important statistical revues of the oil industry, International Petroleum Monthly. The US
petroleum products output data contain the wealth of information, including: