Crude Oil

1. Definition

Crude Oil is a naturally occurring, unrefined petroleum product composed of hydrocarbon deposits. Through fractional distillation, it is refined into usable products like gasoline, diesel, and petrochemicals.

2. Classification Standards

Crude oil is categorized based on its physical properties, which determine its refining value.

2.1. API Gravity (Density)

• Light: Low density, flows freely. Yields a higher percentage of gasoline and diesel. (Trades at a premium).
• Heavy: High density, viscous. Requires more complex refining. (Trades at a discount).

2.2. Sulfur Content (Purity)

• Sweet: Low sulfur content (< 0.5%). Easier and cheaper to refine.
• Sour: High sulfur content. Requires additional processing to remove impurities to meet environmental standards.

3. The Three Major Benchmarks

These serve as reference prices for buyers and sellers globally.

1. WTI (West Texas Intermediate):
   • Characteristics: Light, Sweet (Highest quality).
   • Market: Traded on NYMEX.
   • Logistics: Landlocked in the U.S. (Delivery point: Cushing, Oklahoma). Prices can be affected by pipeline capacity constraints.
2. Brent Crude:
   • Characteristics: Light, Sweet (Slightly heavier than WTI). Extracted from the North Sea.
   • Market: Traded on ICE.
   • Significance: The global benchmark price because it is seaborne and easy to transport worldwide.
3. Dubai Crude:
   • Characteristics: Medium/Heavy, Sour.
   • Significance: The primary benchmark for oil exports from the Middle East to Asia (The largest consumption market).

4. Market Drivers

• OPEC+ Decisions: Production quotas set by the cartel directly impact global supply.
• Geopolitics: Conflicts in the Middle East or Russia often lead to "Risk Premiums."
• Macroeconomics: Global GDP growth drives demand for energy.