Crude Oil Trading

Trading crude oil can be very difficult and there are many factors that affect its price.

Oil is currently drifting higher day by day. Although there has been a recent pull back in line with equity markets from the highs, we are still far higher now than we were 12 months ago.

For all of the talk about variation from dependence on oil, the fact remains that a huge percentage of our energy usage still relies on crude oil. While there are other alternatives to petrol and diesel we are stuck with the historical infrastructure built around these, as anyone who has searched for an LPG or bio-fuel garage will testify.

The daily markets are providing some interesting opportunities for those who are able to buy and sell crude oil. For the Nymex US Oil futures contract, a recent attempted rally ran into quicksand far faster than the bulls might have expected.

The moves higher are still very aggressive but we are now running into general-drifting-lower periods when not much is going on. This is in stark contrast to earlier trading sessions which saw continued upside pressure throughout.

Whisper it quietly but there is a certain amount of trepidation. If we cannot get back onto the front foot soon, the current over-supply of oil, which the markets have ignored for some time, might outweigh the recent concerns about ‘future demand outpacing production’.

Towards the end of 2009 oil had something of a gravitational pull to the $80 per barrel level. Having said that there was, and still is, a degree of volatility around the weekly Oil inventories (due out on Wednesdays 15.30 at local London time and 09.30 local New York time).

Many traders seem to be flattening positions out before the weekly inventories and they are only taking a view in the aftermath.

If I am trading the oil markets, be it US Oil (WTI) and/or UK Oil (Brent) then I prefer to trade my short term positions through a spread betting account.

There are a number of Financial Services Authority regulated companies that offer thousands of international markets including crude oil, currencies, stocks and shares. Spread betting firms, like FinancialSpreads.com and IG Index offer the normal benefits of spread betting including; tax free trading*, trading outside market hours, no brokers fees and no commissions.

Be aware though, spread bets do carry a high level of risk to your capital and you can lose more than your initial stake. You should only speculate with funds you can afford to lose. Before trading, ensure that spread betting matches your investment objectives and familiarise yourself with the risks involved. If necessary, seek independent advice.

* According to current UK and Irish tax law, this may change or differ depending on your personal circumstances.

PETROLEUM and the MILITARY

In World War 2 the Soviet Union sought to protect their oil fields from falling into the hands of Nazi Germany at the Battle of Stalingrad.
The United States has a strategic oil reserve in the event of war or loss of oil supplies.
During the Iran-Iraq War many nations sent military ships to escort tankers carrying oil.
During the Gulf War, Iraq's retreating troops burned Kuwait's oil fields in order to give them air cover, to slow the advance of pursuing coalition forces, and to damage the Kuwaiti economy.
During the Iraq War the United States had military units work to quickly secure oil fields and remove boobytraps. It also had units guarding the Ministry of Petroleum in Baghdad while the rest of the city rioted.
BOOKS ABOUT PETROLEUM
James Howard Kunstler (2005). The Long Emergency: Surviving the Converging Catastrophes of the Twenty-first Century, Atlantic Monthly Press. 0871138883.

C.J. Campbell (2004). The Coming Oil Crisis.

Peter Odell (2004). Why Carbon Fuels Will Dominate the 21st Century's Global Energy Economy, Multi Science. 0906522226.

(2004) Out of Gas: The End of the Age of Oil.

Amory B. Lovins (2004). Winning the Oil Endgame, Rocky Mountain Institute. 1881071103.

(2003) Hubbert's Peak : The Impending World Oil Shortage.

Vaclav Smil (2003). Energy at the Crossroads : Global Perspectives and Uncertainties, The MIT Press. 0262194929.

Daniel Yergin (1991). The Prize: The Epic Quest for Oil, Money, and Power, Simon & Schuster. 0671502484.

Harold F. Williamson and Arnold R. Daum (1959). The American Petroleum Industry: Volume I, The Age of Illumination, Northwestern University Press.

Harold F. Williamson, Ralph L. Andreano, Arnold R. Daum, and Gilbert C. Klose (1963). The American Petroleum Industry: Volume II, The Age of Energy, Northwestern University Press.

Beychok, Milton R. (1967). Aqueous Wastes From Petroleum and Petrochemical Plants, John Wiley and Sons.

Pricing

References to the oil prices are usually either references to the spot price of either WTI/Light Crude as traded on New York Mercantile Exchange (NYMEX) for delivery in Cushing, Oklahoma; or the price of Brent as traded on the International Commodities Exchange (ICE, which the International Petroleum Exchange has been incorporated into) for delivery at Sullom Voe. The price of a barrel of oil is highly dependent on both its grade (which is determined by factors such as its specific gravity or API and its sulphur content) and location. The vast majority of oil will not be traded on an exchange but on a over-the-counter basis, typically with reference to a marker crude oil grade that is typically quoted via pricing agencies such as Argus Media Ltd and Platts. For example in Europe a particular grade of oil, say Fulmar, might be sold at a price of "Brent plus US$0.25/barrel" or as an intra-company transaction. IPE claim that 65% of traded oil is priced off their Brent benchmarks. Other important benchmarks include Dubai, Tapis, and the OPEC basket. The Energy Information Administration (EIA) uses the Imported Refiner Acquisition Cost, the weighted average cost of all oil imported into the US as their "world oil price".

It is often claimed that OPEC sets the oil price and the true cost of a barrel of oil is around $2, which is equivalent to the cost of extraction of a barrel in the Middle East. These estimates of costs ignore the cost of finding and developing oil reserves. Furthermore the important cost as far as price is concerned, is not the price of the cheapest barrel but the cost of producing the marginal barrel. By limiting production OPEC has caused more expensive areas of production such as the North Sea to be developed before the Middle East has been exhausted. OPEC's power is also often overstated. Investing in spare capacity is expensive and the low oil price environment in the late 90s led to cutbacks in investment. This has meant during the oil price rally seen between 2003-2005, OPEC's spare capacity has not been sufficient to stabilise prices.

Oil demand is highly dependent on global macroeconomic conditions, so this is also an important determinant of price. Some economists claim that high oil prices have a large negative impact on the global growth. This means that the relationship between the oil price and global growth is not particularly stable although a high oil price is often thought of as being a late cycle phenomenon.

A recent low point was reached in January 1999, after increased oil production from Iraq coincided with the Asian financial crisis, which reduced demand. The prices then rapidly increased, more than doubling by September 2000, then fell until the end of 2001 before steadily increasing, reaching US $40 to US $50 per barrel by September 2004. [2] In October 2004, light crude futures contracts on the NYMEX for November delivery exceeded US $53 per barrel and for December delivery exceeded US $55 per barrel. Crude oil prices surged to a record high above $60 a barrel in June 2005, sustaining a rally built on strong demand for gasoline and diesel and on concerns about refiners' ability to keep up. This trend continued into early August 2005, as NYMEX crude oil futures contracts surged past the $65 mark as consumers kept up the demand for gasoline despite its high price.

The New York Mercantile Exchange (NYMEX) trades crude oil (including futures contracts) and provides the basis of US crude oil pricing via WTI (West Texas Intermediate). Other exchanges also trade crude oil futures, eg the International Commodities Exchange (ICE) in London trades contracts in Brent crude. Even individuals can now trade crude oil through online trading sites margin account or their banks through structured products indexed on the Commodities markets.

See also History and Analysis of Crude Oil Prices
Top petroleum-producing countries
Source: Energy Statistics from the U.S. Government
In order of amount produced in 2004 (MMbbl/d = millions of barrels per day):

Saudi Arabia (OPEC) - 10.37 MMbbl/d

Russia - 9.27 MMbbl/d

United States 1 - 8.69 MMbbl/d

Iran (OPEC) - 4.09 MMbbl/d

Mexico 1 - 3.83 MMbbl/d

China 1 - 3.62 MMbbl/d

Norway 1 - 3.18 MMbbl/d

Canada 1 - 3.14 MMbbl/d

Venezuela (OPEC) 1 - 2.86 MMbbl/d

United Arab Emirates (OPEC) - 2.76 MMbbl/d

Kuwait (OPEC) - 2.51 MMbbl/d

Nigeria (OPEC) - 2.51 MMbbl/d

United Kingdom 1 - 2.08 MMbbl/d

Iraq (OPEC) 2 - 2.03 MMbbl/d

1 peak production already passed in this state

2 Though still a member, Iraq has not been included in production figures since 1998



In order of amount exported in 2003:

Saudi Arabia (OPEC)

Russia

Norway

Iran (OPEC)

United Arab Emirates (OPEC)

Venezuela (OPEC)

Kuwait (OPEC)

Nigeria (OPEC)

Mexico

Algeria (OPEC)

Libya (OPEC)



Note that the USA consumes almost all of its own production, whilst the UK has recently become a net-importer rather than net-exporter.



Total world production/consumption (as of 2005) is approximately 84 million barrels per day.

CLASSIFICATION

The oil industry classifies "crude" by the location of its origin (e.g., "West Texas Intermediate, WTI" or "Brent") and often by its relative weight (API gravity) or viscosity ("light", "intermediate" or "heavy"); refiners may also refer to it as "sweet", which means it contains relatively little sulfur, or as "sour", which means it contains substantial amounts of sulfur and requires more refining in order to meet current product specifications.

The world reference barrels are:
Brent Blend, comprising 15 oils from fields in the Brent and Ninian systems in the East Shetland Basin of the North Sea. The oil is landed at Sullom Voe terminal in the Shetlands. Oil production from Europe, Africa and Middle Eastern oil flowing West tends to be priced off the price of this oil, which forms a benchmark. See also Brent crude.

West Texas Intermediate (WTI) for North American oil.
Dubai, used as benchmark for Middle East oil flowing to the Asia-Pacific region.
Tapis (from Malaysia, used as a reference for light Far East oil)
Minas (from Indonesia, used as a reference for heavy Far East oil)
The OPEC basket used to be the average price of the following blends:
Arab Light Saudi Arabia
Bonny Light Nigeria
Fateh Dubai
Isthmus Mexico (non-OPEC)
Minas Indonesia
Saharan Blend Algeria
Tia Juana Light Venezuela
OPEC attempts to keep the price of the Opec Basket between upper and lower limits, by increasing and decreasing production. This makes the measure important for market analysts. The OPEC Basket, including a mix of light and heavy crudes, is heavier than both Brent and WTI.

See also [1] In June 15, 2005 the OPEC basket was changed to reflect the characteristics of the oil produced by OPEC members. The new OPEC Reference Basket (ORB) is made up of the following: Saharan Blend (Algeria), Minas (Indonesia), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and BCF 17 (Venezuela).

: http://www.opec.org/home/basket.aspx

Future of oil

The Hubbert peak theory, also known as peak oil, is a theory concerning the long-term rate of production of conventional oil and other fossil fuels. It assumes that oil reserves are not replenishable (i.e. that abiogenic replenishment, if it exists at all, is negligible), and predicts that future world oil production must inevitably reach a peak and then decline as these reserves are exhausted. Controversy surrounds the theory, as predictions for when the global peak will actually take place are highly dependent on the past production and discovery data used in the calculation.
Proponents of peak oil theory also refer as an example of their theory, that when any given oil well produces oil in similar volumes to the amount of water used to obtain the oil, it tends to produce less oil afterwards, leading to the relatively quick exhaustion and/or commercial unviablility of the well in question.
The issue can be considered from the point of view of individual regions or of the world as a whole. Originally M. King Hubbert noticed that the discoveries in the United States had peaked in the early 1930s, and concluded that production would then peak in the early 1970s. His prediction turned out to be correct, and after the US peaked in 1971 - and thus lost its excess production capacity - OPEC was finally able to manipulate oil prices, which led to the oil crisis in 1973. Since then, most other countries have also peaked: Scotland's North Sea, for example in the late 1990s. China has confirmed that two of its largest producing regions are in decline, and Mexico's national oil company, Pemex, has announced that Cantarell Field, one of the world's largest offshore fields, is expected to peak in 2006, and then decline 14% per annum.



For various reasons (perhaps most importantly the lack of transparency in accounting of global oil reserves), it is difficult to predict the oil peak in any given region. Based on available production data, proponents have previously (and incorrectly) predicted the peak for the world to be in years 1989, 1995, or 1995-2000. However these predictions date from before the recession of the early 1980s, and the consequent reduction in global consumption, the effect of which was to delay the date of any peak by several years. A new prediction by Goldman Sachs picks 2007 for oil and some time later for natural gas. Just as the 1971 U.S. peak in oil production was only clearly recognized after the fact, a peak in world production will be difficult to discern until production clearly drops off.
One signal is that 2005 saw a dramatic fall in announced new oil projects coming to production from 2008 onwards. Since it takes on average four to six years for a new project to start producing oil, in order to avoid the peak, these new projects would have to not only make up for the depletion of current fields, but increase total production annually to meet increasing demand. 2005 also saw substantial increases in oil prices due to temporary circumstances, which then failed to be controlled by increasing production. The inability to increase production in the short term, indicating a general lack of spare capacity, and the corresponding uncontrolled price fluctuations, can be interpreted as a sign that peak oil has occurred or is presently in the process of occurring.

HISTORY

The first oil wells were drilled in China in the 4th century or earlier. They had depth of up to 243 meters and were drilled using bits attached to bamboo poles. The oil was burned to evaporate brine and produce salt. By the 10th century, extensive bamboo pipelines connected oil wells with salt springs. Ancient Persian tablets indicate the medicinal and lighting uses of petroleum in the upper echelons of their society.
In the 8th century, the streets of the newly-constructed Baghdad were paved with tar, derived from easily-accessible petroleum from natural fields in the region. In the 9th century, oil fields were exploited in Baku, Azerbaijan, to produce naphtha. These fields were described by the geographer Masudi in the 10th century, and by Marco Polo in the 13th century, who described the output of those wells as hundreds of shiploads.
The modern history of petroleum began in 1846, with the discovery of the process of refining kerosene from coal by Atlantic Canada's Abraham Pineo Gesner. Poland's Ignacy Łukasiewicz discovered a means of refining kerosene from the more readily available "rock oil" ("petr-oleum") in 1852 and the first rock oil mine was built in Bobrka, near Krosno in southern Poland in the following year. These discoveries rapidly spread around the world, and Meerzoeff built the first Russian refinery in the mature oil fields at Baku in 1861. At that time Baku produced about 90% of the world's oil. The battle of Stalingrad was fought over Baku (now the capital of the Azerbaijan Republic).
The first commercial oil well drilled in North America was in Oil Springs, Ontario, Canada in 1858, dug by James Miller Williams. The American petroleum industry began with Edwin Drake's discovery of oil in 1859, near Titusville, Pennsylvania. The industry grew slowly in the 1800s, driven by the demand for kerosene and oil lamps. It became a major national concern in the early part of the 20th century; the introduction of the internal combustion engine provided a demand that has largely sustained the industry to this day. Early "local" finds like those in Pennsylvania and Ontario were quickly exhausted, leading to "oil booms" in Texas, Oklahoma, and California.

By 1910, significant oil fields had been discovered in Canada (specifically, in the province of Alberta), the Dutch East Indies (1885, in Sumatra), Persia (1908, in Masjed Soleiman), Peru, Venezuela, and Mexico, and were being developed at an industrial level.

Even until the mid-(1950s), coal was still the world's foremost fuel, but oil quickly took over. Following the 1973 energy crisis and the 1979 energy crisis, there was significant media coverage of oil supply levels. This brought to light the concern that oil is a limited resource that will eventually run out, at least as an economically viable energy source. At the time, the most common and popular predictions were always quite dire, and when they did not come true, many dismissed all such discussion. The future of petroleum as a fuel remains somewhat controversial. USA Today news (2004) reports that there are 40 years of petroleum left in the ground. Some would argue that because the total amount of petroleum is finite, the dire predictions of the 1970s have merely been postponed. Others argue that technology will continue to allow for the production of cheap hydrocarbons and that the earth has vast sources of unconventional petroleum reserves in the form of tar sands, bitumen fields and oil shale that will allow for petroleum use to continue in the future, with both the Canadian tar sands and United States shale oil deposits representing potential reserves matching existing liquid petroleum deposits worldwide.
Today, about 90% of vehicular fuel needs are met by oil. Petroleum also makes up 40% of total energy consumption in the United States, but is responsible for only 2% of electricity generation. Petroleum's worth as a portable, dense energy source powering the vast majority of vehicles and as the base of many industrial chemicals makes it one of the world's most important commodities. Access to it was a major factor in several military conflicts, including World War II and the Persian Gulf War. About 80% of the world's readily accessible reserves are located in the Middle East, with 62.5% coming from the Arab 5: Saudi Arabia (12.5%), UAE, Iraq, Qatar and Kuwait. The USA has less than 3%.

Environmental effects
The presence of oil has significant social and environmental impacts, from accidents and routine activities such as seismic exploration, drilling, and generation of polluting wastes. Oil extraction is costly and sometimes environmentally damaging, although Dr. John Hunt from Woods Hole pointed out in a 1981 paper that over 70% of the reserves in the world are associated with visible macroseepages, and many oil fields are found due to natural leaks. Offshore exploration and extraction of oil disturbs the surrounding marine environment. Extraction may involve dredging, which stirs up the seabed, killing the sea plants that marine creatures need to survive. Crude oil and refined fuel spills from tanker ship accidents have damaged fragile ecosystems in Alaska, the Galapagos Islands, Spain, and many other places.
Burning oil releases carbon dioxide into the atmosphere, which contributes to global warming. Per energy unit, oil produces less CO2 than coal, but more than natural gas. However, oil's unique role as a transportation fuel makes reducing its CO2 emissions a particularly thorny problem; amelioration strategies such as carbon sequestering are generally geared for large power plants, not individual vehicles.

Renewable energy source alternatives do exist, although the degree to which they can replace petroleum and the possible environmental damage they may cause are uncertain and controversial. Sun, wind, geothermal, and other renewable electricity sources cannot directly replace high energy density liquid petroleum for transportation use; instead automobiles and other equipment must be altered to allow using electricity (in batteries) or hydrogen (via fuel cells or internal combustion) which can be produced from renewable sources. Other options include using biomass-origin liquid fuels (ethanol, biodiesel). Any combination of solutions to replace petroleum as a liquid transportation fuel will be a very large undertaking.

EXTRACTION

Locating an oil field is the first obstacle to be overcome. Today, petroleum engineers use instruments such as gravimeters and magnetometers in the search for petroleum. Generally, the first stage in the extraction of crude oil is to drill a well into the underground reservoir. Historically, in the USA, some oil fields existed where the oil rose naturally to the surface, but most of these fields have long since been depleted, except for certain remote locations in Alaska. Often many wells (called multilateral wells) are drilled into the same reservoir, to ensure that the extraction rate will be economically viable. Also, some wells (secondary wells) may be used to pump water, steam, acids or various gas mixtures into the reservoir to raise or maintain the reservoir pressure, and so maintain an economic extraction rate.

If the underground pressure in the oil reservoir is sufficient, then the oil will be forced to the surface under this pressure. Gaseous fuels or natural gas are usually present, which also supply needed underground pressure. In this situation it is sufficient to place a complex arrangement of valves (the Christmas tree) on the well head to connect the well to a pipeline network for storage and processing. This is called primary oil recovery. Usually, only about 20% of the oil in a reservoir can be extracted this way.

Over the lifetime of the well the pressure will fall, and at some point there will be insufficient underground pressure to force the oil to the surface. If economical, and it often is, the remaining oil in the well is extracted using secondary oil recovery methods (see: energy balance and net energy gain). Secondary oil recovery uses various techniques to aid in recovering oil from depleted or low-pressure reservoirs. Sometimes pumps, such as beam pumps and electrical submersible pumps (ESPs), are used to bring the oil to the surface. Other secondary recovery techniques increase the reservoir's pressure by water injection, natural gas reinjection and gas lift, which injects air, carbon dioxide or some other gas into the reservoir. Together, primary and secondary recovery allow 25% to 35% of the reservoir's oil to be recovered.

Tertiary oil recovery reduces the oil's viscosity to increase oil production. Tertiary recovery is started when secondary oil recovery techniques are no longer enough to sustain production, but only when the oil can still be extracted profitably. This depends on the cost of the extraction method and the current price of crude oil. When prices are high, previously unprofitable wells are brought back into production and when they are low, production is curtailed. Thermally enhanced oil recovery methods (TEOR) are tertiary recovery techniques that heat the oil and make it easier to extract.

Steam injection is the most common form of TEOR, and is often done with a cogeneration plant. In this type of cogeneration plant, a gas turbine is used to generate electricity and the waste heat is used to produce steam, which is then injected into the reservoir. This form of recovery is used extensively to increase oil production in the San Joaquin Valley, which has very heavy oil, yet accounts for 10% of the United States' oil production. In-situ burning is another form of TEOR, but instead of steam, some of the oil is burned to heat the surrounding oil. Occasionally, detergents are also used to decrease oil viscosity. Tertiary recovery allows another 5% to 15% of the reservoir's oil to be recovered.

Alternative means of producing oil
As oil prices continue to escalate, other alternatives to producing oil have been gaining importance. The most viable of these is the coal to oil process, of which the most efficient is the Karrick process, which converts coal into crude oil. Production has been esitmated to be work out at about $35 per barrel.

A less efficient metholdology is the Fischer-Tropsch process. It was a concept pioneered in Nazi Germany when imports of petroleum were restricted due to war and Germany found a method to extract oil from coal. It was known as Ersatz ("substitute" in German), and accounted for nearly half the total oil used in WWII by Germany. However, the process was used only as a last resort as naturally occurring oil was much cheaper. As crude oil prices increase, the cost of coal to oil conversion becomes comparatively cheaper.

The method involves converting high ash coal into synthetic oil in a multistage process. Ideally, a ton of coal produces nearly 200 liters (1.25 bbl, 52 US gallons) of crude, with by-products ranging from tar to rare chemicals.
Currently, two companies have commercialised their Fischer-Tropsch technology. Shell in Bintulu, Malaysia, uses natural gas as a feedstock, and produces primarily low-sulfur diesel fuels. Sasol in South Africa uses coal as a feedstock, and produces a variety of synthetic petroleum products. The process is today used in South Africa to produce most of the country's diesel fuel from coal by the company Sasol. The process was used in South Africa to meet its energy needs during its isolation under Apartheid. This process has received renewed attention in the quest to produce low sulfur diesel fuel in order to minimize the environmental impact from the use of diesel engines.

More recently explored is Thermal depolymerization (TDP). In theory, TDP can convert any organic waste into petroleum.

FORMATION

Biogenic theory
Most geologists view crude oil, like coal and natural gas, as the product of compression and heating of ancient vegetation over geological time scales. According to this theory, it is formed from the decayed remains of prehistoric marine animals and terrestrial plants. Over many centuries this organic matter, mixed with mud, is buried under thick sedimentary layers of material. The resulting high levels of heat and pressure cause the remains to metamorphose, first into a waxy material known as kerogen, and then into liquid and gaseous hydrocarbons in a process known as catagenesis. These then migrate through adjacent rock layers until they become trapped underground in porous rocks called reservoirs, forming an oil field, from which the liquid can be extracted by drilling and pumping. 150 m is generally considered the "oil window". Though this corresponds to different depths for different locations around the world, a 'typical' depth for an oil window might be 4 - 5 km. Three conditions must be present for oil reservoirs to form: a rich source rock, a migration conduit, and a trap (seal) that forms the reservoir.

The reactions that produce oil and natural gas are often modeled as first order breakdown reactions, where kerogen breaks down to oil and natural gas by a large set of parallel reactions, and oil eventually breaks down to natural gas by another set of reactions.



Abiogenic theory
The idea of abiogenic petroleum origin was championed in the Western world by Thomas Gold based on thoughts from Russia, mainly on studies of Nikolai Kudryavtsev. The idea proposes that large amounts of carbon exist naturally in the planet, some in the form of hydrocarbons. Hydrocarbons are less dense than aqueous pore fluids, and migrate upward through deep fracture networks. Thermophilic, rock-dwelling microbial life-forms are in part responsible for the biomarkers found in petroleum.

This theory is very much a minority opinion amongst geologists. This theory often pops up when scientists are not able to explain apparent oil inflows into certain oil reservoirs. These instances are rare.

Petroleum

Petroleum (from Greek petra – rock and elaion – oil or Latin oleum – oil ) or crude oil, sometimes colloquially called black gold or "Texas Tea", is a thick, dark brown or greenish liquid. Petroleum exists in the upper strata of some areas of the Earth's crust. It consists of a complex mixture of various hydocarbons, largely of the alkane series, but may vary much in appearance and composition. Petroleum is used mostly, by volume, for producing fuel oil and gasoline (or petrol), both important "primary energy" sources (IEA Key World Energy Statistics). Petroleum is also the raw material for many chemical products, including solvents, fertilizers, pesticides, and plastics

Oil consumption

The subject of oil consumption, as it relates to the global supply of oil is one that has been somewhat ignored in the calculation of oil reserves. Yet, oil consumption is the figure that is most likely to trip up many of even the most knowledgeable forecasters.

The study of the remaining reserves of world oil figures, even if totally accurate show that production is remaining at a steady though small upward growth. The figure which has changed drastically even over the last decade is the oil consumption.

Several factors have affected the oil consumption figures. First is that society is increasingly dependent upon industrialization in order to provide economic stability in the political climate. Industrialization means increased dependence upon oil and petroleum products, not only for energy to power the machines and equipment, but for the basic building blocks of the product.

When there were only a few industrialized nations, this oil consumption figure was manageable, but today, new societies and nations are joining the ranks of power consumers each day and most are coming onto the scene not gradually, but with expectations of higher level technology that they see from the industrialized nations.

Oil consumption in countries such as China and North Korea is increasing at an exponential rate, and the forecasts simply have not taken this into account in viewing the depletion of oil reserves. Price increases as the gap between the oil consumption rate and the oil production rate grows are inevitable, but price increases may not be the only problem. Resource wars in the mistaken belief that more oil will solve the problem and a general collapse of oil-dependent societies may occur, in the foreseeable future.

The entire oil production and consumption balance does not have to break down completely, either. A gap of as little as 5 to 10 percent between the two can be enough to create wildly fluctuating prices and increased stress on the oil dependent society in countries through most of the free world. The expectation of increasingly common blackouts and power shortages beginning as early as 2008, are beginning to be publicly stated by those who have reason to know.

Right now, the oil consumption in the United States is the largest in the world, over 20 million barrels per day, over three times that of the second ranked nation�China.

Is it too late to do something about oil consumption? Perhaps, but actions during and following earlier shortages did have an impact�some of it permanent--on usage. For example, during the 1970's fuel crunch, people turned to more fuel efficient cars, auto manufacturers revamped their entire line to make vehicles with higher mpg ratings. People took an active role in making homes energy efficient, and technology focused on better utilization of energy resources. These improvements and savings didn't go away when the prices dropped again, and there is still more improvements and energy conscious decisions to be made.

Certainly an awareness of the problem is appropriate and any individual actions which are taken in the area of reducing oil consumption cannot hurt.

How about those reserves annalists are talking about? Am I out of a job in 5 or 10 years?

It is the topic many people talk about, the question of how much oil remains before we start running out. This question becomes challenging to answer, when we want to be accurate. 30 years ago, the estimate was that we would be running out of oil by now. So far it seems that we are still able to go to the gas station and stop for some gas to fill up our car. They were wrong, but how wrong were they?

Founder of Association for the Study of Peak Oil (ASPO), Dr Colin Cambell said the following: "Understanding depletion is simple. Think of an Irish pub. The glass starts full and ends empty. There are only so many more drinks to closing time. It’s the same with oil. We have to find the bar before we can drink what’s in it.”

Another issue is the peaking point- when we will reach the peak of our production capabilities to pump conventional, easy accessible oil out of the ground.

In general Oil reserves are estimated into three different groups:
Proven reserves:
•probable reserves
•possible reserves
The proven reserves are the most reliable and seem to be correct in the range of 90-95%. The probable reserves are less accurate, of course, and should be in the order of 45-50%. The possible reserves are a complete guess and are in the low percentiles. Map of oil reserves in the world

For every 100% of oil we use at the moment we only discover 25% new oil. This clearly shows that current prices are not too high at all. The general expectation is that oil prices will go up more because oil is for the world what water is for us- essential and unable to live without. From our cars to the clothing we wear, we need oil to fabricate it.

No need for panic but certainly time to start acting upon it. The world needs to over think how we are going to deal with this before we run into problems. Efficient use of our energy sources, sustainability and innovation are important subjects from today on.

For now the reserves seem to supply us at least the next two decades with enough oil to keep our economies growing. For sure the oil will not be gone; the only thing that might have changed by then is the level on how much we depend on oil. Innovations that make it possible to run cars on other types of fuels will maybe be up and running by that time.

At the moment about two third of the oil is used for transportation, the rest is used for to lubricate machinery large and small, such as bicycles or printing presses, to make the asphalt we use to pave our roads, to make plastics, such as the toys we play with and the portable radios or CD players we listen to and also to make medicines, ink, fertilizers, pesticides, paints, varnishes etc. Many things are made out of oil, meaning you won’t be out of a job!

What is petrol?

In the United States to say "what is petrol?" is a legitimate question, since it's a term not readily used. In most British Commonwealth countries except for Canada, however, the question "What is petrol?" might brand you as a foreigner in the country.

Petrol is a short term for "petroleum spirits" and is used in the same way that people in the United States and Canada use the term "gas" for "gasoline". The question stated "What is petrol?" would be understood as "What is gasoline?" in the U.S. The word �petrol' was registered as early as 1892 in Great Britain as a trade name by British wholesalers Carless, Capel & Leonard and was used in reference to the refined product. Although petrol was never registered as a trademark, other distributors used the term Motor Spirits until the 1930's. At one time Petrol was a brand name of a treatment for head lice. The danger of fire and of dermatitis eliminated this use for petrol.

Petrol or gasoline is a petroleum-derived liquid mixture of hydrocarbons, benzene and iso-octanes, which form the fuel in internal combustion engines. This does not include diesel fuel or liquid petroleum gas.

To describe what petrol is chemically, you could provide the chemical formula for one or more hydrocarbon molecules along with additives, whichs help the performance of the fuel. Most hydrocarbon molecules contain between 5 and 15 carbon atoms for each molecule, arranged in sometimes intricate patterns including straight line, branched and single and double rings. Many of the hydrocarbons in gasoline are actually considered hazardous substances, including benzene, toluene, naphthalene and trimethylbenzene. These various additional hydrocarbons must be added to the distilled or straight run petrol for effective performance.

Even though one would think petrol was pretty standard, at least in a particular refinery, in fact, each batch of the fuel is likely to be slightly different in make-up and performance. The crude oil that the petrol was derived from and the grade of petrol can make a tremendous difference in the chemical composition. The determination of what petrol is can thus vary slightly even in one day.

Many countries are tightening the limits of petrol aromatics such as benzene and the olefin contact. This is forcing refineries to tighten up their quality control processes and also to change processing steps in order to reduce the content of benzene.

Petrol may also have organic ethers added deliberately. On the other hand petroleum distillers do not want contaminants such as sulfur compounds in the petrol as this may corrode the engine. Petrol used for aviation fuel has a different mixture of hydrocarbons than does that of automobile fuel.

The United Kingdom is well down the list of petrol consumption by country, with a usage of 1,722,000,000 per day, compared to consumption for the U.S. 20,030,000 daily usage
Since over 84 percent of petrol is used for fuel of internal combustion engines, the other 16 percent is used in the production of plastics and other non-fuel products.

Oil hovers below $77 a barrel in Asia as traders mull euro after $1 trillion bailout plan

SINGAPORE - Oil prices hovered below $77 a barrel Tuesday in Asia after wild gyrations of the euro whipped crude around for the last week.

Benchmark crude for June delivery was down 13 cents to $76.67 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The June contract rose $1.69 to settle at $76.80 on Monday.

Oil is down from an 18-month high of $87.15 a barrel early last week as the European debt crisis undermined investor confidence in the euro. Commodities priced in dollars, such as oil, become more expensive for investors holding euros as the U.S. currency strengthens.

Crude rebounded Monday after the European Union Commission and International Monetary Fund pledged a loan package of euro750 billion ($975 billion) to defend the common currency, but closed off its high of $78.51 as the euro gave back some of its gains.

The euro fell to $1.2725 on Tuesday from $1.2790 on Monday while the dollar fell to 92.72 yen from 93.29 yen.

Some analysts expect the bailout to temporarily stabilize European bond prices but eventually weaken the euro and weigh on oil prices.

"While the euro-zone support plan appears sufficient to forgo any contagion for now, additional weakening in the euro should eventually spill over" into oil prices, Ritterbusch and Associates said in a report.

In other Nymex trading in June contracts, heating oil rose 0.27 cents to $2.123 a gallon, and gasoline was steady at $2.173 a gallon. Natural gas fell 2.0 cents to $4.150 per 1,000 cubic feet.

In London, Brent crude was down 15 cents to $79.97 on the ICE futures exchange

Oil rises in Asian trade

SINGAPORE – Oil was higher in Asian trade Thursday after falling sharply in recent days, boosted by Japanese traders returning to the market following a long holiday, analysts said.

New York's main contract, light sweet crude for June, was up 25 cents to $80.22 a barrel, while Brent North Sea crude for June delivery gained 18 cents to $82.79.

Trading volume had been lower than usual in recent days due to the Japanese market being closed and investors staying away on worries about debt-laden Greece, analysts said.

"For the last three days trading volume in Asia has been slightly softer than usual. So now, we are coming back to the market," Ken Hasegawa, energy desk manager of brokerage firm Newedge Japan, told Agence France-Presse.

He said the market also moved up along with a new "technical point of $80."

Prices have slumped more than six dollars since touching $87.15 Monday, the highest level since October 2008, as worries over the Greek debt crisis sent the dollar higher, analysts said.

The market was also weighed down by rising oil inventories in the US, indicating weakening demand in the world's largest energy consuming nation.

Data released Wednesday by the US Department of Energy showed crude stockpiles soared 2.8 million barrels last week. That was far greater than market expectations for a gain of around 700,000 barrels, according to analysts.

Iran behind the Oil Price Hike By MERLIN FLOWER for OIL-PRICE.NET,

When oil prices were dropping after the Dubai crisis, Iran took it upon itself to save the price of oil. After all, Iran has the third largest oil reserves in the world. But how did it go about doing it? By a small symbolic gesture of planting the Iranian flag on a low productive oil field in Iraq.

On December 17, Iranian soldiers seized an oil well in Al-Fakkah in the Maysan province, North of Basra. Al-Fakkah situated about 200 miles southeast of Baghdad is the seat of one of Iraq's largest oil fields with reserves of about 1.5 billion barrels. This region is a shared border between Iran and Iraq, claimed by both countries as theirs. The dispute, in fact, has been going on for years since the 1980s- after the end of the eight year war.

Any conflict here-or just rumors of it-and the world jumps to the conclusion that oil supplies from the region would be affected. Already, Iraq was opening up its oil fields for foreign companies after thirty years. There were two bids for oil in Iraq this year; the first bid didn't get through as investors weren't keen on oil from disputed areas. The second bid took place just a week before the incursion, with many oil companies present in Baghdad bidding on oil contracts. And, contracts were awarded to seven of the 15 oil fields. Then Iran grabbed headline space with its actions in Iraq to raise the price of oil.

Among the issues that worked in favour of Iran are:

Oil prices are extremely volatile. Unlike conventional demand and supply fluctuations, oil responds quickly to risk factors like war or war like situations even if the supply is steady.
Iran's position in the oil world- Iran is a large player in the oil business being the fourth largest producer of oil in the world
When Iran does something, the world takes notice
Details emerging from the place would be at best sketchy as journalists are barred from the disputed territory In short, Iran didn't have much work to do. The stage was set and it only had to make people believe of 'some' tension in the region.

Per se, it seems, Iran was able to pull it off too. Most of what was reported in the media hinged on the inference that Iran was asserting its supremacy in the region-the prevailing border dispute helped too. And it was precisely that fact to which the market and investors reacted to. As the news spilled across the globe, oil prices rose. Iran played the role it sought all along-innocence. Amir al-Rashadi, a spokesman at the Iranian Embassy in Baghdad, said, "We don't have any information about this, but we suspect it is all lies".

According to officials in Iraq, an emergency meeting of the National Security Council was convened with the Iranian Ambassador called in to lodge an official protest. Security forces and police reinforcements were deployed in the area by Iraq. Iraq behaved as if it knew the plan of Iran. Iraqi Government spokesperson al-Dabbagh told Al-Arabiyah TV "Again, we ask Iran to be committed to the good relations that they announced with Iraq and its nation, and to withdraw its forces immediately".

But soon, Iranian military claimed that it had not violated Iraq's sovereignty as the area was Iran's territory with the statement to Al-Alam satellite television "Our forces are on our own soil and, based on the known international borders, this well belongs to Iran."

Iran has better political, cultural, religious and economic relations with the current Shiite government in Iraq. Of course, indeed, there was political tension in the region after the recent election and over the country's nuclear program. If Iran wanted to divert attention from the crisis at home, it would have done something more dramatic, not a meek incursion like this. Anybody's guess then that this was a well planned 'news' to hike the price of oil.

Meanwhile, the US was laidback in its response. The US government in the past had accused the Iran regime of funding and sending across Iran fighters into Iraqi soil. Adm. Mike Mullen, America's top military official said the oil well incident must be resolved between Iran and Iraq, and there were no plans by the United States to intervene. U.S. Ambassador to Iraq Christopher Hill's words on Iraqi response to Iran incursion "It does speak to the overall view here that they are not going to be pushed around by Iran".

Of course there were doubts raised too. Edward Morse, head of economic research at LCM Commodities LLC said, the border "is not clearly delineated, is in desert and is in dispute anyway." He added, "The possession of an unproductive well seems a strange thing on which to hang a national crisis".

As of December 20th, Iranian forces are said to have withdrawn from the region. According to Reuters, a spokesman of Iraqi government is said to have confirmed it saying, "The Iranian flag has been lowered, and Iranian troops have pulled back 50 meters, but they have not gone back to where they were before. The Iraqi government asked for the troops to go back to where they were".

A symbolic gesture on a low productive oil field but has given huge financial relief for the Middle-East. If you believe this is all some silly hypothesis, check out the price of crude today-$81.74 a barrel. The extent countries go for increasing the price of oil...

Oil Contango and its Effects on Oil Prices By MERLIN FLOWER for OIL-PRICE.NET,

A cold wave has engulfed much of Europe, the US and Northern Asia. The resultant freezing temperature has led to a thirty percent surge in the demand for heating oil. With it, the heating oil prices reached a thirteen month high last week. And today, the price of oil per barrel is the highest in 15 months. For a start, indeed, the cold wave is an important reason for the high oil prices, but there is another equally important factor as well: Oil Contango.

A contango is when the investor or producer puts the commodity into storage waiting for the prices to improve-before selling. Markets get into contango when the prices don't reflect the actual value of the commodity. In other words, if the investors feel that they could get better returns, say, after six months, they store the commodity instead of selling it immediately. This is called contango.

For oil, the price of futures is usually calculated using the present day price of oil (spot price) and the expense incurred in storing it. For instance, if oil per barrel costs about $ 70 today, you calculate the expense incurred in storage-about $20 per barrel. Then you add both and sell it at a price of $90 per barrel. So it's basically simple economics-just store the oil and sell it to make profit. In January 2009, the oil market started to get into a contago. Not least because the prices were very low at about $36 a barrel. In short, traders, oil companies, producers and investors put a large amount of crude- millions of barrels mainly in tankers- and refined products under storage.

This was termed 'super contago' as the speculators anticipated a huge/unusual profit when/if the markets recovered. Mind you, the investor could suffer heavy losses too as this theory is based mainly on speculation. Still, as the financial crisis was on, it triggered many investors to stock oil. Oil investor forums were awash with predictions of increase in oil prices six months on.

Looking back, the contago seems to have lasted for a better part of last year. Check out some figures for commercial inventories (oil held by refiners, producers, investors and others)

In January 2009, the U.S. Commercial inventories was at 325.4 million barrels. This was the highest since May, 2008
Come April, the contango was at 10% from June to September
In October, the US commercial stocks dropped as gasoline and distillate inventories withdrew some of the stocks. But even after the draw the overhang with the five year average was impressive at about 70mb. (OPEC Monthly Oil Market Report, November 2009). The OECD (Organization for Economic co-operation and Development) commercial oil inventories dropped too, but remained above the five year average at 80 mb in the same month.
By late October, according to EIA (Energy Information Administration) , oil inventories were more than thirty percent higher than the previous year. The distillate stockpiles had also reached levels never seen in the previous thirty years.
According to EIA's short term energy outlook released in December 2009, OECD commercial oil inventories stood at 2.77 billion barrels at the end of the third quarter. This was about 115 million barrels above the five year average.

Oil pundits predicted that this 'super contago' could derail as soon as the stocks reached the maximum storage capacity. After all, it's not possible to keep on piling barrels and barrels of oil. (Indeed this story was picked up by the media with a huge outcry over three floating tankers along the British coastline, waiting with the oil. But the hype died off as the rumors couldn't sustain the interest). Many feared that once the maximum capacity was reached, the oil prices could crumble as the market would be flooded with oil.

However, the market never reached the predicted situation. What's more, there emerged room for more storage. In December, Cushing, the world's largest commercial oil site added about 5.2 million barrels of storage capacity to the existing 42.4 million barrels. The maximum storage due to safety precautions is pegged at 41.2 and 43.8 million barrels from 34 million barrels of operable storage space earlier.

It also didn't stand when many analysts predicted that the contango could lead to $10 oil a barrel. The contention- eventually, the stored oil would have to be unloaded. The low demand for oil and the strong dollar added strength to the prediction but now, thanks to the cold wave, the unloading of the 'super contago' has come at the right time.

And, this December the unloading started. According to EIA's Weekly Natural Gas Storage Report released on December 31 2009, working gas in storage was 3,276 Bcf, a net decline of 124 Bcf from the previous week. But, as pointed earlier, due to the cold wave and the surge in demand the oil prices increased.

As often is the case, knowing the opportunity of a price rise the oil companies did increase production. According to a survey, OPEC increased the crude oil production to 26. 965 mbd in December. This was the highest level attained last year, an increase of up to 65,000 b/d from November.

Yet, the fact remains that the unloading hasn't happened on a massive scale as expected. Consumption does seem to have recovered in the fourth quarter. But if the cold wave abates, then there is possibility for the oil prices to see a correction, so investors watch out.

New Trade Regulation proposals and Oil By By MERLIN FLOWER for OIL

On Jan 21, the US President Barack Obama announced a series of measures to reduce risk in the financial sector. The proposals intend to tighten the regulatory mechanism and prevent a second- or like- sub-prime mortgage crisis. That is, the banks will not be able to put the whole economy at risk-again.

"If these folks want a fight, it's a fight I'm ready to have" said Obama. The folks are the financial institutions like the banking sector which would have limits on trading activities. Financial institution backed by the government will be prevented from taking huge risks. The move would impact Wall Street's trade directly.

The proposals have been dubbed as 'the Volcker Rule' after the former Federal Reserve Chairman, Paul A. Volcker, who advocated strong financial reform with more regulatory control. The regulations aim to correct the soaring profits and obscene bonuses of certain firms. "We should no longer allow banks to stray too far from their central mission of serving their customers," were the words of The US President.

Coming on heels of his party's election loss in Massachusetts, the President has used a populist stance. His move looks like an attempt to stop the slide in his popularity rating. A smart move nevertheless, as it's no secret that banks are hated by many people, being held responsible for the economic crisis. In addition, the bailouts of the banks using the taxpayer's money created a huge public outcry. Since then there has been pressure from various quarters to regulate the financial system. The first proposal was thus put forward by President Obama in June 2009. Then on Dec 11, 2009 the House approved the Democratic plan to tighten federal regulations, especially of the Wall Street.

Some proposal that preceded the Volcker rule:

New regulator, tentatively called Consumer Financial Protection Agency would oversee credit cards, mortgages and consumer debt. Thus the role of banks become limited
New rules for transaction to prevent another economic slowdown
Measures to reduce threat of bankrupt companies ruining the economy
The Federal Reserve gets a greater role to play in overseeing large financial institutions

Volcker rule in detail:
These proposals would limit banks and Wall Street firms which own banks from owning, investing in, sponsoring or advising any hedge funds or private equity funds. As sharp move as the US banks have a hefty nine percent share in private equity capital.

The regulations will separate commercial banks from investment banks. Banks trade for profit backed by the deposit insurance, safeguards and guarantees bestowed on them by the government. Obama plans to limit these risks, as they are subsidized by the taxpayer who would suffer if things go wrong.

The president said that he cannot accept a system where shareholders make money on the operations 'if the bank wins but taxpayers foot the bill if the bank loses'. Thus only commercial banks that stay away from proprietary trading on their own accounts would benefit from the Federal Reserve's discount window. (The federal discount window or Fed's use of credit, in short, is a government loan facility which helps the banks to borrow reserves at a discount rate. It helps alleviate the liquidity problems of the banks).

In other words, banks can either engage in proprietary trading or resort to being a traditional bank -not both. Banks like Goldman Sachs and Morgan Stanley would be affected as they will have to forgo their status as commercial banks if they want to continue in proprietary trading. Also, both the banks will have to leave from the private equity businesses. (However, the banks can still return their deposit base-which is small- and withdraw from the federal discount window).

Elsewhere, China too is tightening its monetary policy. Some of its banks have been asked to halt lending for some time. This comes in the backdrop of heavy lending in the first two weeks of the year. Together with Volcker rule and the Chinese move, the stock markets around the world fell with the Wall Street reeling under the worse decline in a day in three months. The banking sector has reacted sharply which found resonance in the stock market and dollar-both fell.

Crude oil and gold prices too fell soon after the Volcker rule announcement. This was based on investor fear that banks won't be able to trade in crude futures on their own accounts.

Ramifications of the Volcker proposals on oil:
Banks have in recent years, invested heavily in risky ventures, which, if one recalls, led to the financial crisis. Major Banks in the US have pumped in billions of dollars speculating on oil and gas contracts. The latest proposal will make it difficult and expensive for the commercial banks to buy gas and oil contracts.
Oil prices are driven by speculation, which will take a back seat with banks absent from the scene. Some analysts like hedge fund manager Mike Masters are of the view that the limited role of commercial banks will result in less volatility in the energy market.
The 'Super Contango' will come to play its part. The oil stored will be offloaded into the market, resulting in more oil availability. (For more details on Contango: http://www.oil-price.net/en/articles/oil-contango-effects-on-oil-prices.php)
According to a report of the government, the United States was using less energy than 2009. Though demand is increasing from growing economies in Asia, they may not be able to offset for the lesser demand in the US. Already the effects are to be seen: On Jan 21, IEA said that the country's gasoline supply increased by 3.9 mbd the previous week in the wake of less demand. The commodity fell to a four-week low after the weekly EIA report revealed that refineries have slashed their operating rates as fuel demand declines. In fact they have also slowed down their operations. Still, due to oil contango there will be oil in the market.
The Volcker rule is yet to be passed by the senate; hence it's still early to predict the actual trajectory of the oil prices. Indeed, some of the proposals may not even see the light of the day. Still, taken together, the oil prices may not increase to the record levels seen earlier this year. On the face of it, this is good for the consumer who will have to spend less on transportation. However, the oil industry would have to battle the underinvestment. Also, if the banks were to withdraw the investments made, the whole industry would be affected in the long term.

Oil War in the Falkland Islands

This could be the script of any Hollywood blockbuster: The recent spat between Argentina and the UK over oil in the Falkland Islands. For, there is a conflict, two or more protagonists, oil, money and drama.

The diplomatic battle started hogging the headlines as Argentina began criticizing Britain for its plan to drill for oil and gas in the waters north of the Falkland Islands. The Argentine foreign ministry in a statement said the government "firmly rejects plans of the United Kingdom to authorise operations of exploration and extraction of hydrocarbons in the area of the Argentine continental shelf under illegitimate British occupation".

The Falkland Islands also known Islas Malvinas comprise about 340 islands. The majority of the population is British descent. The islands have been under British control since the year 1833. In 1982, a brief war called the Falklands war started when Argentina's military junta invaded the Falkland Islands, South Georgia and South Sandwich Islands. The war which started on April 2, ended on June 14 after Argentina surrendered to Britain. Though the Falkland Islands is under British rule, Argentina still claims the islands, including them in the Argentine constitution.

For now, Argentina says that it would blacklist the oil exploration companies working in the region. "It's not accidental that the oil companies involved are British, that is to say, the only ones that can really believe the chimera that the UK is peddling about the alleged legality of these commercial operations", said official Argentine sources.

On the other side, British reaction has been subdued. The Financial times reported a UK diplomat as saying that the UK Prime Minster, Gordon Brown was anxious to "avoid military confrontation". A spokesperson for the UK embassy in Argentina said "We have no doubt about our sovereignty over the Falklands Islands and the surrounding maritime area." And that "The Falkland Islands government is entitled to develop a hydrocarbons industry in its waters and there is a long-standing policy to support this".

Argentina says that Britain continued to ignore the UN resolution to renew dialogue on the sovereignty of the South Atlantic islands. In 1995, both the countries signed a joint declaration to cooperate on off shore oil explorations around the Falkland Islands. In 2007, Argentina voided the 1995 oil and gas exploration declaration with the UK, which was on suspension for five years. Meanwhile, the UK wants to extend its rights to areas surrounding the islands.

Why the waters around Falkland Islands are important?
The reason is simple to state: The areas around Falkland Islands are said to have one of the world's largest reserves of oil, mainly in the north basin. There are reserves in the South and East of Falkland islands as well. The British Geological Survey estimates the oil at about 60 billion barrels. The hydrocarbons in the basins were discovered in 1998 itself by companies like Shell and Amanda Hess. But soon after oil prices fell-$12-15 per barrel- and with it ended the efforts to drill for oil.

But now that technology, skill set and oil prices have improved, the companies are able to contract rigs for the exploration with improved resources. Ben Romney, a Desire Petroleum spokesman said, "With the rise in oil prices and the worldwide search for new oil and gas services, it has now become more than commercially viable for this work to begin". The oil well costs about $25million-$30million in the north basin where drilling depth reach 500m. It would cost $30million-$35million in the south basin as the depths are higher at 3,000m.

The major players:
Six companies hold licence for oil exploration in the region- Desire, Falkland Oil & Gas, Rockhopper, Borders & Southern, Argos Resources and Arcadia (the last two are private companies)

Desire Petroleum PLC (LSE: DES): It has licence in the north basin. The company expects to recover oil worth about 3 billion boe in four wells. Its rig, Ocean Guardian is expected to arrive in Falkland Islands this week, to drill 100 miles offshore.
Rockhopper (LSE: RKH): Has licence in north basin. Expecting oil worth 4.3 billion boe.
Borders & Southern (LSE: BOR): Licence is in south basin. Not ready to speculate on the amount of oil, yet.
Falklands Oil & Gas (LSE: FOGL): associated with BHP Billiton. Licence for drilling in east and south basin. Estimates the oil to be about 60 billion boe
Last June, Phyl Rendell, Falkland Islands Director of Minerals and Agriculture had this to say about the South American influence, "Their political stance and restrictions on our movements are harmful to our economic development. And we are striving to develop our economy with that threat over us".

Indeed, the potential benefits of oil are huge:
The government of Falkland Islands will benefit from the fees, rentals and taxes. The corporation tax has been set at 26% on profit with 9% royalty on production. This makes the Falkland Islands a profitable place to drill
It will benefit the Falkland Islands economy as the oil fields would be one of the largest fields in the world. There would be more investments, flights, international trade, tourism and job creation
Though oil, if found, would take time to reach the market, once there, it would keep balance the oil prices. In turn, balanced (not too high or low) oil prices will help the world economy as a whole.
It would be good news for the oil industry. Investor confidence would get a fillip and a possible domino effect of more investments for oil exploration would follow
The oil in the region can, in a way, erode the monopoly of OPEC (The Organization of the Petroleum Exporting Countries) over world's oil reserves
Other obstacles:
Considering the fragile eco-system of the region and with the exploration set to begin in full swing, it might be a challenge for the Falkland Islands government to protect the eco-system
The exploration for oil in the area is a huge risk. In case no oil is found, the loss would count to billions of dollar
In later developments, the diplomatic salvo between the countries reached a crescendo with Argentina preventing a ship from loading a cargo of pipelines-said to be for oil exploration. The group that owns the cargo, Techint has said that the pipes were heading towards the Mediterranean ports. To which the Argentine foreign ministry stated: "There is evidence that the ship was being used to supply material linked with the oil industry activities that are being illegally promoted by Britain in the Malvinas (Falkland Islands)".

A bull-blown conflict may not yet be a possibility as Britain's Foreign Secretary, David Miliband expressed confidence in dialogue. "I think the Argentinean government has got many more areas to co-operate with the UK than to disagree about," he said. Not to forget, the UK military has base near Port Stanley so security may not be a problem for the drilling companies.

The co-operation between the countries will help in the smooth execution of the exploration process. The demand for oil is growing; the IEA has predicted oil demand to grow by 120,000 barrels per day in 2010. So, every potential field has to be tapped wherever possible-except, if possible, in environmentally sensitive spots. Renewable energy sources are still not in a position to compete against oil, and so oil exploration ought to be encouraged. Investments have started pouring into oil exploration and it has to keep going, starting with the Falkland Islands.

Oil Drilling - an Expensive Business By MERLIN

Among all the undertakings in the world, this could rank as one of the riskiest ventures-oil drilling. Here's a sampler for what we are talking about from Mukluk Island: In 1983, twelve companies spent nearly $2 billion drilling for oil in the Beaufort Sea, North of Alaska. The exploration was based on oil stains found. But the well turned out to be a dry hole with no oil. Little wonder then that oil drilling is risky and expensive.

According to Arizona Geological Survey, Oil drilling in Arizona costs between $400,000 to $1,000,000, depending on the depth of the hole and its location. A rig capable of drilling most exploratory holes typically costs $8,000-15,000 per day. Well then, why is drilling for oil so expensive?

It is because of some of the costs involved:

Payments for the contractors, welders, engineers, supervisors, mud loggers, geologists, scientists
Personnel for drilling, logging, cementing, casing and other logistics
Clearing all the dues with the landowner (territorial payments if offshore), payment of taxes, fee for attorney, permit to drill the well
Costs for maintenance: There will be three shifts with personnel employed 24 hours a day, so amenities for the crew like motels, restaurants, transport, water and food.

Onto the process of drilling, how is the well drilled?
Well, the drilling rig bores a hole into the earth through which steel pipes are inserted. Pipes or casings like cement would then be put in between for strength as well as for separating different pressure zones- if they exist. The well is then drilled further, and more casings are added. At times, 2-3 layers of casings would be built depending on the geological composition of the zone. The rotator table then passes the drill string onto the hole. The drill string rotating by 'top drive' or 'power swivel' mechanism extends the drill bit. This extension is done with the help of the derrick (the structure holding the drill string). The drill bit then cuts the rock into pieces.

Drilling fluid, also called mud-mixture of fluids, chemicals, abrasives and solids - is then pumped down the drill string. This fluid clears the cut rock bits onto the surface. Compressed air is substituted for the fluid, at times. In turbo-drilling, a turbine is placed in the drill string. Mud flows through this turbine causing the drill bit to rotate.

We saw earlier that oil drilling is expensive, so are the drilling contractors because:

Discovery of new oil wells is very rare
Low yields from old/mature wells
High risks involved in the exploration process
Fluctuating price of oil and gas
Increased demand for oil as well as for drilling contractors

The drilling works are done by specialized drilling companies like Transocean, Diamond Offshore Drilling, Inc and Noble. In general, these drilling companies rent or lease their drilling rigs to oil and gas companies like ExxonMobil, Royal Dutch, BP and Shell. In return, they earn revenue through day rates.

Average well cost in the UK continental shelf in 1998-Northern North Sea £ 8-12 million, West of Shetland £ 5 - 15 million, Southern North Sea £ 7 - 12 million, Irish Sea £ 2 - 3 million. To get a more clear idea of the costs involved let's take a look at some of the drilling companies:

Transocean: This is the world's second largest offshore drilling contractor. Recently the company penned a contract for a well in West Africa for $630,000 a day and its Deepwater Pathfinder is the most expensive drill ship in the world. It also signed a three year contract from a consortium of contractors at $460,000 a day in the Q3 of 2009. Most of Transocean's drilling is occurring in the Far East, the U.K., Middle East, the U.S., as well as parts of Africa and Asia. Average day rate of Transocean has moved from $211,900 in 2007 to $283,800 in the third quarter of 2009.

Diamond offshore drilling, Inc: Operating as offshore contract drilling, the company concentrates more on the Gulf of Mexico. It has about 45 rigs, 30 semi-submersibles (11 high- specification capable of working in water depths of more than 4000 ft, 19 intermediate rigs-work at depths less than 4,000 ft., 15 jack-ups- operates at water depths of up to 400 feet). The day rate was $386,000 in the fourth quarter of 2008 which increased to $360,000 per day in the first quarter of 2009. In the Q2 of 2009, the day rate was $381,000 for high specification floaters, $286,000 for intermediate semis and $146,000 for jack-ups.

Noble: It is the third largest offshore oil exploration and production company with presence in India, Mexico, Brazil, Middle East and West Africa. It has 63 drilling units (13 semi submersibles, 44 jack-ups and three submersibles). The day rate was $83,417 in 2006 and $164,000 in 2009 (by comparison average day-rates for Noble's international fleet was $60,922 in 2005 and $83,417 in 2006).

Ensco International: It has 45 jack-ups, one semi-submersible, one barge rig and three ultra deep water semi submersible rigs. Apart from the US, the company has presence in Europe, Asia Pacific and Africa and the Middle East. The day rate of the company rose to $155,000 in 2008, a dramatic increase from the rates of $114,762 in 2006 and $139,882 in 2007.

Seadrill: This Norway based company received contracts worth $4.1 billion for three deepwater rigs from Brazilian Petrobras - day rates was more than $600,000.

Though the oil prices have fallen in recent times, the companies still earn profit, in fact, their profit has surged- as seen from the above discussion-- as most of their contract run through 2010.

Petrol scarcity looms in France as oil refinery workers strike

Paris - French Industry Minister Christian Estrosi tried to assure the country's car drivers Monday that service stations would not run out of petrol as a strike of workers at oil giant Total's refineries went into its sixth day. "The government will undertake measures so that France will not be blocked," Estrosi told Europe 1 radio, promising that "there will be no problem with (petrol) supplies."

The strike by Total oil refinery workers continued Monday after negotiations between company representatives and trade unions broke off late Sunday with no results.

The job action was called to protest the threatened closing of one of Total's six French refineries. Total head Christope de Margeries said late Sunday, after the meeting with Estrosi, that a final decision on the refinery would be taken in late March.

However, he vowed not to shut down the site completely and to put in place another form of activity that would protect some of the jobs.

Total produces half of the petrol pumped at French service stations. However, trade union officials have said that workers at two refineries run by Exxonmobil would join the strike Tuesday.

US opens more areas for oil exploration By MERLIN

Sarah Palin is the one allied with the campaign "Drill, baby, drill", but in an inventive merger the President has laid claims for it too-very nearly. In a bold attempt to boost the domestic oil and gas production, he has opened up large offshore areas along the southern Atlantic coastline, the eastern areas of the Gulf of Mexico and northern shore of Alaska for drilling.

The U.S. has had a long-term moratorium on oil exploration for almost twenty years. The move towards more exploration is aimed to reduce oil imports, obtain more revenue from lease and licence and to whip up support for the comprehensive energy and climate legislation.

As expected there was an angry backlash from environmentalist. Detractors say the move:

Contributes to global warming with increase in pollution
Kicks in fears of chemical and oil spills
Threatens coastal communities dependent on the sea
Affects the habitat of endangered polar bears, whales and other wildlife
Will open up more areas like the west coast for oil exploration
Won't bring in energy security or reduce oil imports

"This is not a decision that I've made lightly" Mr Obama said, aware of the objection from environmentalists. "But the bottom line is this: given our energy needs, in order to sustain economic growth, produce jobs, and keep our businesses competitive, we're going to need to harness traditional sources of fuel even as we ramp up production of new sources of renewable, home-grown energy."

In the meantime, supporters of the move, for their part, see this as an attempt to decrease dependency on foreign fuel. They say, it adds jobs and brings in more energy security; that when oil is produced locally, it helps the economy with more income and demand for goods.

The announcement comes as a 'give and take' policy to garner support and momentum for a new energy and climate bill that proposes cuts in green house gases. The senate is expected to take up the climate bill shortly, almost the last chance before the mid-term elections. The bill has already been passed by the House of Representatives, and the President is hoping to get Republican support in the senate. The US Press Secretary Robert Gibbs said that the move was more to give energy support to the American people as the country was about sixty percent dependent on foreign oil, and that the proposals still weren't sure to win support from senators close to the oil industry. Republican support or not, ten Democratic senators from the coastal states have already signed a joint letter expressing opposition to the exploration.

Already the President has made major concessions on coal and nuclear power to garner support for the bill. In the announcement unveiled at Andrews Air Force Base Mr Obama had also included plans to expand the production of nuclear power to "move us from an economy that runs on fossil fuels and foreign oil to one that relies more on home-grown fuels" and clean energy. Only last month, the President had announced a $50 billion loan guarantee to build eight new nuclear power plants.

Said Mr. Obama, "While our politics has remained entrenched along worn divides, the ground has shifted beneath our feet. Around the world, countries are seeking an edge in the global marketplace by investing in new ways of producing and saving energy." Further he added, "The only way this transition will succeed is if it strengthens our economy in the short term and the long run. To fail to recognise this reality would be a mistake."

Other energy proposals include ordering of 5,000 hybrid vehicles to the federal fleet and more stringent fuel economy standards for new cars. "This rule will not only save drivers money; it will save 1.8 billion barrels of oil," Mr Obama said. "That's like taking 58 million cars off the road for an entire year."

Drilling already taking place in the western and central areas in the Gulf of Mexico would come now closer to just 125 miles from Florida. But officials said that a buffer would be put in place off the Florida shore line so that the rigs aren't visible from the land. The first drill would take place off the coast of Virginia within two years. However, it all depends on the Congress lifting the moratorium on drilling.

The administration, in effect, is thus adopting some measures put forward by President Bush, which were challenged in court on environmental basis. The Interior Department had set aside the proposal after President Obama came to power. But one notable difference from Bush's plan is exception given to the ecologically sensitive Bristol Bay in south-western Alaska, which has several endangered species of whales and fishes. The moratorium would also remain for the Pacific coast from California to Washington. Of course, the Oil companies aren't happy with the exempted areas, either.

The Interior Department says the untapped oil would meet three years of U.S. oil demands. Though at this point the oil estimates aren't clear, the reserves would be relatively smaller than the Department's estimates, and would not impact the price of oil. A clear picture will emerge only after the exploration begins. And, it will take years, anywhere between 14-16 years, before the oil is seen. For a comparison, EIA's Short-Term Energy Outlook, for March 2010 shows that domestic crude oil production averaged 5.32 million bbl/d in 2009, up about 370,000 bbl/d from 2008. The projected growth in crude oil production this year is by 210000 bbl/d.

This move for oil drilling isn't surprising as during his presidential campaign in 2008, President Obama had said that he supported expanding offshore drilling for oil and gas. A senior counsel at the Center for Biological Diversity, Brendan Cummings, said the announcement was "all too typical of what we have seen so far from President Obama - promises of change, a year of 'deliberation,' and ultimately, adoption of flawed and outdated Bush policies as his own".

If not oil, then what?
In fact, the US is the third largest crude producer in the world, but imports almost 57 percent of the oil it needs. The top fifteen countries in the list of crude oil imports to the US last year were, are Canada, Mexico, Nigeria, Saudi Arabia, Venezuela, Algeria, Iraq, Angola, Brazil, Colombia, Russia, Kuwait, Azerbaijan, Congo, and Ecuador.

According to EIA, there is substantial decline in production from oil fields in the federal Gulf of Mexico and Alaska. Further, the US liquid fuel consumption was a staggering 18.7 million bbl/d in 2009 even when it declined by 810000 bbl/d to previous years.

So, there is need for oil and do we have an alternative at present? The pill is bitter to swallow but the answer is 'no'. To limit the opposition to oil drilling in the U.S. alone is to see a small picture of the whole problem. Oil drilling wherever it's done (not only in the U.S., which has better resources to tackle problems of the kind) could cause ecological damage, whatever precautions taken. The proposed explorations will not markedly reduce the dependency on foreign oil. Neither are they 'the' solution for the energy needs.

Hence, what's to be done is to decrease the dependency on oil. Small but significant steps are the need for the hour with increased investments in safe and clean renewable sources of energy. This announcement, at best, is just a temporary measure, whichever way you think.

The Black Viscous Liquid - Crude Oil

The black viscous liquid, or Crude Oil, was first discovered in 1846 in Eastern Europe. While the whole process of oil production started by refining kerosene from coal, the first commercial oil well was drilled in Romania in 1858. One year later drilling started in other countries, and the USA started producing Crude Oil. With 2000 barrels produced in 1859, production rose to 126 million barrels by 1906 in the US alone. Although significant fields had been discovered worldwide, oil did not replace coal as the primary source of fuel until the mid 1950s. Oil fields are scattered throughout the world, with about 80% of the reserves located in the Middle East.

As oil remains a valuable energy source, its price depends on many factors including demand and supply, geopolitical circumstances, production costs, and many other factors.

The volatility of oil prices has made oil and many of its derivatives attractive instruments for traders worldwide. Currently Crude Oil, natural gas, Brent, ME sour crude oil, and a few others are traded on the main exchange floors.

In 1983 Crude Oil began futures trading on the NYMEX and it is still the most heavily traded commodity. Basically crude futures trade 30 consecutive months, and oil futures are quoted in dollars and cents per barrel. The last trading day is the close of business on the third business day prior to the 25th calendar day of the month proceeding the delivery month. If the 25th calendar day is a non business day, trading ceases on the third business day prior to the last business day proceeding the 25th business day.


Crude Oil is regarded as a highly volatile commodity. While minimum fluctuation is $0.01, a daily movement of 10% is not uncommon. Price is affected heavily by demand and supply; and thus any factors affecting supply could have a sharp effect on oil; on the other hand, economic crises and economic growth may have long term effects on demand which leads to a price change in oil.

Foreign Exchange companies like Easy-Forex offer oil day trading to individual traders. As a trading product oil has some peculiarities as it trades predominantly over the exchanges and there is not a liquid continuous spot market. Even though it is a commodity like Gold or Silver, oil trading is performed in the same way as any other currency. It is Over the Counter (OTC) trading which means that the transaction is performed directly between the two parties involved - the buyer and the seller. There is no third party involved, like in an exchange market.

In today’s market place online oil trading is easily accessible to any individual looking for investment opportunities. Trading platforms are less complicated than ever before and with minimal upfront deposits getting started is a straightforward procedure. Look for platforms that offer a sound, uncomplicated platform, are regulated in your region and offer personal service and training.

Castrol Activ 4T - Synthetic technology

Ways To Deal With The Increasing Cost Of Petrol

Gas prices continue to rise, and many of us have a harder and harder time making ends meet. It seems like this battle against rising prices may never end, and the thought of driving our cars becomes a more difficult one to swallow when you consider the overall costs involved with paying for gas over time. A big part of our paychecks now goes toward gas if we drive long distances, and many of us can't handle such an expense! But fear not, following a few simple guidelines can help you to stretch your money a bit further at the gas pump.

Gasoline will be denser in the early morning or late at night due to the colder temperature. You'll be getting more for your money if you pump gas during these times when the gas is denser.

Do you shop around for the best gas price, or do you go to the station closest to your home? Most people simply visit the nearest gas station out of convenience, even if that means a markup of a few dollars per visit for the same amount of gas. While it is true that driving around looking for lower-priced gas actually uses more gas, it may be worth your time to compare gas prices online before driving to a gas station.

Want your car to burn gas more efficiently? Keep it well maintained, and don't forget to have it tuned. Tuning a car can reduce fuel consumption, often by 20 percent!

Change your oil and air filters regularly, and don't forget about your tires. Underinflated tires can raise fuel consumption by 6 percent! If you are not keeping your tires inflated and aligned properly, you may be buying more gas than you should need.

Did you know that you can save money by staying within the posted speed limits? It's true - the faster you drive the more fuel your car will burn. You can also improve fuel efficiency by using the overtime gear whenever you can. This will reduce wear and tear on you engine.

Try combining errands rather than doing them on different days. Cold starting your engine uses more gas than starting an engine that is already warm, so going to the grocery store and the bank today uses less gas than going to the grocery store today and the bank tomorrow.

These are easy ways to reduce your gas consumption, which is not only good for your wallet, but is good for the environment as well!