Oil Forever

Investopedia defines Crude Oil as naturally occurring unrefined petroleum product composed of hydrocarbon deposits, in shades of black and yellow with a ranging viscosity, many times referred to as “Black Gold”.


I will sincerely admit that out of the long boring definition, the words that caught my eye were “Black Gold”. Gold! Really?

 

Let me put up a disclaimer at the very beginning:

If you think we are going to discuss Oil prices and outlook here, you might be disappointed.

There is a huge, ever increasing global demand for Crude Oil. Depending on its properties such as specific gravity and its sulphur content, Crude Oil is mainly classified into WTI (West Texas Intermediate) Crude and Brent Crude. These two are assorts of a benchmark for Crude widely used and widely traded. Crude Oil producing countries are classified in two, namely the OPEC and non-OPEC, where OPEC stands for Organization of the Petroleum Exporting Countries.

OPEC was founded in Baghdad, Iraq, in September 1960 by five countries – Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. They were founder members of the organization. Since its inception, Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975), and Angola (2007) joined OPEC.

This tells us about the supply side. On the demand side, the US is the largest consumers of Crude Oil followed by China.

Following is the world supply-demand graph of Crude Oil. From the figure, it is clear that supply is able to keep its pace with demand.

Source: Bloomberg, ACMIIL Research

 

From time to time, we hear and read articles on how Crude Oil is a limited resource and in no time, the wells will go dry. This type news certainly affects Crude prices. Other factors such as wars and pipeline damages also affect Crude Oil prices. Everyone is aware of these issues and many alternatives are being searched. There are a couple of alternatives, which have already been successfully implemented. The US is now discovering a large resource of Shale Oil Gas, and some pilot projects for commercial production are underway.

 

There is a big league of global environmentalists working round-the-clock to convince everyone to use clean energy resources. This forces us to think, will there be a dependence on ‘Crude Oil – Forever?’ Well, we have all the facts and figures in front of us, however, what is really going to pan out, only time would tell.

 

For traders, we do run a commodity desk and advice clients interested in catching the short-term moves of Crude Oil listed on MCX. Please feel free to write to us or get in touch if you have any queries.

 

 

 

Written By: Sumeet Jain, CMT

Senior Analyst

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

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