How Does the Crude Oil Market Work?

From an economic perspective crude oil is what makes the world go around. So how does the market function? Read on as we delve into what makes the crude oil industry tick.

Where does crude oil come from?

Modern society depends on crude, with oil and gas giants investing billions into extracting resources across the globe. For billions of years the remains of prehistoric animals and plants have been compressed under extreme conditions. The tremendous heat and temperatures compacted the organic matter into hydrocarbons that now exists as natural resources. As well as crude oil, these also include coal, natural gas and even diamonds. Crude oil supplies are found across the globe, with countries such as Saudi Arabia, Iraq and Iran home to huge reserves. Other nations rich in crude include Russia, Venezuela and the USA.

Making money

Similar to the stock market, people can make money off trading commodities such as crude oil. Investors can purchase ‘futures’ that act as a bet on whether or not the resource’s price will increase at a later date. Once futures have been locked in buyers receive their commodities at that price, regardless of whether or not the market has swung in their favour. This is done in the International Petroleum Exchange, as well as the New York Mercantile Exchange (NYMEX).

Keeping tabs on the market

The Organisation of the Petroleum Exporting Countries (OPEC) governs the international oil market by actively monitoring its oil supplies and rationing them out in a bid to sway supply availability and prices. Unfortunately their efforts can sometimes backfire, with the ‘gas crisis’ of the 1970s seeing OPEC punish western nations for their support of Israel. They rolled out an oil embargo that led to a radical rise in the cost of oil. This kicked off a severe recession that saw US gas priced skyrocket from 30 cents per gallon to an eye watering $1.20 per gallon at the height of the crisis.

What happens when oil reserves run dry?

Plain and simple, crude oil is a non-renewable source of energy. This means that when we’ve bled the planet dry, oil is categorically gone. To prepare for the inevitable scientists are already pioneering new forms of energy, with a focus on renewable resources such as wind, solar, geothermic and hydro power.

Process analytics is an integral part of the crude oil industry. ‘Use of Modern Process Gas Chromatographs in the Oil and Gas Industry’ explores the value of process gas chromatography and its pivotal role in process analytics.