North Sea is a marginal sea of the Atlantic Ocean located between Great Britain

, Scandinavia, Belgium, and the Netherlands.

Arabian sea is the marginal sea for indian ocean
x
OPEC members collectively hold 79% of world crude oil reserves and 44% of the wo
rld s crude oil production
OPEC- Organization of Petroleum Exporting countries - Algeria, Saudi Arabia, UAE
, Qatar, Venezuela, Libya, Nigeria, Iran, Iraq
OPEC's ability to control the price of oil has diminished somewhat since then, d
ue to the subsequent discovery and development of large oil
reserves in Alaska, the North Sea, Canada, the Gulf of Mexico, the opening up o
f Russia, and market modernization.
-----------------------------------------------------------------------------------------------------------------------------------------------------Unit of measurement - unit of volume - 1 barrel =159 litres
- API - American Petroleum Institute - API gravity, is a measure of how heavy o
r light a petroleum liquid is compared to water.
If its API gravity is greater than 10, it is lighter and floats on water; if
less than 10, it is heavier and sinks.
The higher the API, the lighter the crude
- Light crudes generally exceed 38 degrees API and heavy crudes are generally t
hose with an API gravity of 22 degrees or less.
- Crude oil is also classified by sulphur content. Sweet crude has less than 1%
sulphur content, sour crudes greater than 1%.
-WTI Crude Oil price - $88
-Brent Crude Oil price - $112
- WTI Crude Oil
West Texas Intermediate (WTI) crude oil is of very high quality and is excellent
for refining a larger portion of gasoline.
Its API gravity is 39.6 degrees (making it a light crude oil), and it contains onl
y about 0.24 percent of sulfur (making a sweet crude oil).
- Brent Crude Oil
Brent Blend is actually a combination of crude oil from 15 different oil fields
in the Brent and Ninian systems located in the North Sea.
Its API gravity is 38.3 degrees (making it a light crude oil, but not quite as
ht as WTI), while it contains about 0.37 percent of sulfur
(making it a sweet crude oil, but again slightly less sweet than WTI).
------------------------------------------------------------------------------------------------------------------------------------------------------1 - Refinery utilization rate
We also expect a negative relationship between refinery utilization rates and cr
ude oil prices.
This effect can be understood two ways. Increasing rates of refinery utilization
forces refiners to
buy crudes that are less well suited to refineries. This reduces their yield and
reduces the value of

lig

products they produce. Similarly, as refineries reach capacity, the demand for c
rude oil drops,
which also reduces prices.
The relationship between oil prices & refinery utilization rate is negative such
that higher refinery utilization rates reduce crude oil prices.
This effect is associated with shifts in the production of heavy and light grade
s of crude oil and price spreads between them.
- Refinery utilization rates affect crude oil prices based on the ability of ref
ineries to convert
crude oil to final products. Crude oil is available in different qualities: sour
and sweet, heavy
and light.
- Refineries are designed to operate most efficiently using specific crudes such
that the
values of crude rises and falls based on the availability of specific types of c
rude relative to
existing refining capacity. Although currently much of the world s refining capaci
ty is set up to
use light sweet crudes, heavy sour crudes represent much of the unused productio
n capacity in
OPEC.
- However, rapidly rising demand for refined oil products and growing supplies o
f crude
oil have squeezed spare refining capacity.
- Bottlenecks have also arisen in the downstream oil industry through a lack of
de-sulphurisation capacity and limited conversion capacity, reflecting
limited investment in the industry.
- high utilization rates can interfere with field maintenance that is needed to
ensure the long-run
productivity of the well. Similarly, operators are reluctant to pump at very low
utilization rate
because fixed costs of production are very much greater than operating costs so
long as prices
remain above operating costs operators will desire to operate their wells to pay
off their fixed
costs.
- Desire to operate within this range coupled with inelastic price elasticities
of demand
imply that prices must change significantly to move refinery utilization rates b
ack towards the
normal operating range. As capacity utilization rises beyond normal operating co
nditions and
supplies become tight, inelastic demand implies that large prices increases are
needed to bring
utilization rates back to the normal range.
2- existence of non-linearities in the relationship between oil prices and the q
uantity delivered to the market
Although a linear relationship could be a reasonable approximation under normal
circumstances,
extreme events may shift the market equilibrium between supply and demand toward

s different
types of market functioning in which prices are much more sensitive to shocks th
an under
normal conditions. Non-linearities may be caused by lags associated with buildin
g additional
extraction and refining capacity

Given these constraints, oil prices would be more sensitive to supply as product
ion approaches
capacity
3 - Conditions in future markets
Finally, the conditions on the futures markets (whether the market is in contang
o - the
price of crude oil for four month contracts are greater than the price for near
month contracts - or
in backwardation - the price of crude oil for four month contracts is less than
the price for near
month contracts-) might affect the stock behaviors and, in turn, the oil price s
etting.
4 - Crude prices vary depending on the oil s density, sulphur content, and other p
hysical characteristics, as well as its proximity
to markets.
crude oil prices as a function of
- OPEC capacity,
- OECD crude oil stocks,
- OPEC quotas and
- cheating by OPEC on those quotas
capacity utilization, production quotas, and production levels
---------------Crude quality----------------The effect of refinery utilization rates on the price of crude oil is associated
with changes in
the quality of crude oils produced. The quality of a crude oil is determined in
large part by its
density and sulfur content. The density of crude oil is measured by an API gravi
ty index, which
measures the density of crude oil relative to water. An API value of greater tha
n 10o indicates
that crude floats on water, with larger values indicating a reduction in density
(i.e. lighter crude).
In general, light grades of crude oils are of higher quality because they genera
te greater yields of
more valuable light products (e.g. motor gasoline). Crude oils with a high sulfu
r content (socalled
sour crudes) are of lower quality because they increase refinery maintenance cos
ts due to
enhanced corrosion associated with the sulfur
Additional refining is required for the heavier crudes to produce the
lighter products demanded by the market. The spread is also governed by the
demand for end products. Heavier crudes tend to produce a greater proportion of

heavier products such as fuel oil, for which demand (and hence prices) have
been weak recently. As demand for oil products has risen, and production with it
,
so the average grade of crude oil has deteriorated, leaving the world with a
shortage of the more sophisticated refining capacity required to process the
heavier crudes.
In addition to gravity and sulphur content, the type of hydrocarbon molecules
and other natural characteristics may affect the cost of processing or restrict
a
crude oil s suitability for specific uses. The presence of heavy metals,
contaminants for processing and for the finished product, is one example. The
molecular structure of a crude oil also dictates whether a crude stream can be
used for the manufacture of specialty products, such as lubricating oils, or of
petrochemical feedstocks.
Refiners therefore strive to run the optimal mix (or slate ) of crudes through thei
r
refineries, depending on the refinery s equipment, the desired output mix, and the
relative price of available crudes. In recent years, refiners have confronted tw
o
opposite forces
consumers and government mandates that increasingly require
light products of higher quality (the most difficult to produce) and crude oil s
upply
that was increasingly heavier, with higher sulphur content (the most difficult t
o
refine).
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