Oil industry basics that everyone should know in 3 minutes
1. 5 absolutely basic facts about Oil
that everyone must know
OIL INDUSTRY
BASICS THAT
EVERYONE
SHOULD KNOW
2. Key Features of Oil
Contents
Demand
For Oil
Supply of
Oil
Oil
Refining
What is
Oil? Oil Players
Steps involved in
Refining Oil
Sources of Oil and
Supply of Oil
Sources of Demand
for Oil
Main Players in the
Oil Market
4. Oil is a natural liquid mixture of hydrocarbons. Two critical properties of oil are
a) The Density of Oil, and b) Sulphur Content
What is Oil?
5. - Density is measured with a scale called API (American Petroleum Institute).
- Units of this scale is called Degree. A higher API means less dense mixture.
- Oils with API greater than 31.1 degrees are called Light Crude Oils. They are
expensive and more desirable than Heavy Crude Oils.
Density of Oil
6. To put things in perspective, API of water is 10 degrees. Oils with API higher
than 10 degrees float on water.
Density of Oil
7. - Oils with lower Sulphur content are more valuable. Sulphur reduces the
energy value of crude oil.
- Sour Crude Oils: Oils with more Sulphur content (more than 0.5%).
- Sweet Crude Oils: Oils with less Sulphur content.
Sulphur Content
8. - Sulphur in Dubai/Oman Crude oil is 1.04%.
- Sulphur in Brent and WTI Crude oil benchmarks is 0.45%.
(Dubai / Oman / Brent / WTI are different types of crude oils being sold)
Sulphur Content
9. Key Features of Oil
Contents
Demand
For Oil
Supply of
Oil
Oil
Refining
What is
Oil? Oil Players
Steps involved in
Refining Oil
Sources of Oil and
Supply of Oil
Sources of Demand
for Oil
Main Players in the
Oil Market
11. Crude oil is of little use in its original form, therefore, it needs to be refined
before becoming usable. After the oil is extracted, there are five stages of oil
refining.
Why refine oil?
12. Every hydrocarbon has a different boiling point. In distilling, crude oil is boiled
to separate the different qualities of oil. The most valuable output here is
petrol (gasoline). Heavier crude oils (higher API) have lower petrol content.
1. Distilling
13. - Cracking: Heavier oils are broken into shorter chain molecules.
- Combining: Shorter chain molecules are joined to make heavier oils.
2. Cracking / Combining
14. In this process, chemical composition of oil products is changed to make more
value-added petrochemicals.
3. Modifying
16. Key Features of Oil
Contents
Demand
For Oil
Supply of
Oil
Oil
Refining
What is
Oil? Oil Players
Steps involved in
Refining Oil
Sources of Oil and
Supply of Oil
Sources of Demand
for Oil
Main Players in the
Oil Market
18. - Large deposits of oil are trapped at high pressure beneath the ground.
- Oil companies insert a pipe (in layman terms) in this area and oil flows out
due to pressure.
- Production from onshore wells varies between 10 barrels per day to
500,000 barrel per day.
Onshore Wells
19. A barrel is equal to 42 US gallons. That’s it.
What is a Barrel?
20. The world’s biggest oil field is Saudi Arabia’s Ghawar field with production of
more than 500,00 barrels/day.
Biggest onshore field
21. - These are similar to onshore wells but are under the sea. Oil rigs are
therefore built in waters.
- 33% of world’s oil production comes from offshore wells.
Offshore Wells
22. - Tight oil means oil deposits trapped under hard rocks within the earth’s
surface.
- To get this oil, oil companies have to break those rocks through drilling and
another process called Fracking.
- More than 50% of oil produces in the US is through Fracking.
Tight (shale) oil
23. - Heavy oil is naturally mixed with sand, clay, and water. Recovering this oil is
more expensive than other methods.
- Leading producers are in Canada and Venezuela
Sand (Tar) Oil
25. - Oil is formed under the surface of earth and the process takes millions of
years.
- It is difficult to predict when all the oil on earth will end!
- Currently most of the oil discovered is still under the surface.
Oil Reserves
26. - Proved reserves of oil currently are estimated at 1.7 trillion barrels. (Proven
reserves means there is a 90% probability that the oil will be extracted at
current prices with current technology)
- Most oil rich countries are Saudi Arabia, Venezuela, Canada, Iran and Iraq.
Oil Reserves
27. Summary
While we see US, Russia and China up there, the Middle East Region collectively is still the most important
production region (makes up half of the world oil production)
Source: US Energy Information Administration
Oil Producing Countries
Rank Country
Production
(millions of barrels
per day)
1 US 13.7
2 Saudi Arabia 11.9
3 Russia 11
4 China 4.6
5 Canada 4.4
6 Iraq 4
7 United Arab Emirates 3.5
8 Iran 3.4
9 Mexico 2.7
10 Kuwait 2.7
28. Key Features of Oil
Contents
Demand
For Oil
Supply of
Oil
Oil
Refining
What is
Oil? Oil Players
Steps involved in
Refining Oil
Sources of Oil and
Supply of Oil
Sources of Demand
for Oil
Main Players in the
Oil Market
30. - Oil is used in literally every economic activity. Hence higher economic
growth leads to increased demand.
- Current global oil demand stands at 97 million barrels per day.
- Not getting into the types of oils and their refined products. If you need
detailed information, hit me up on LinkedIn.
Oil Demand
32. - Crude oil price is quite volatile.
- Demand for oil changes slowly because there are few alternatives of oil.
- For the above reason, oil price normally depends more on supply.
- Producers of oil can increase or decrease production to change oil prices.
Oil Price
33. - Typically, the price of oil is also affected by war and natural disasters.
- Prices of some oil products is affected by seasonality. For example, petrol
prices in the US rise in the summer when people drive more. In contrast,
price of heating oil rises in the winter.
35. Three main sectors
1. Upstream sector – Initial discovery and production of oil
Sectors - Upstream
36. 2. Midstream – Transportation of oil from drilling wells to refineries
Midstream
37. 3. Downstream – Refining and marketing of oil to consumers
Downstream
38. Key Features of Oil
Contents
Demand
For Oil
Supply of
Oil
Oil
Refining
What is
Oil? Oil Players
Steps involved in
Refining Oil
Sources of Oil and
Supply of Oil
Sources of Demand
for Oil
Main Players in the
Oil Market
40. These are privately-owned oil companies. The six largest companies are
labelled as Big Oil. They are: BP, Chevron, ExxonMobil, Royal Dutch Shell, Eni,
and Total.
International Oil Companies
41. These are government controlled oil companies. Most of them are upstream
companies. They control more than 90% of proven oil reserves and 75% of
world’s oil production.
National Oil Companies
44. - Organization of Petroleum Exporting Countries (OPEC) is an organization
comprising mainly of middle eastern oil producers (US, Russia and China are
not members of OPEC).
- OPEC members hold about 80% of the world’s oil reserves.
OPEC
45. - This means, they have the power to change the oil supply, which in turn
changes oil prices.
- However, these days, OPEC is unable to control oil price. Reason? You tell me…
OPEC
