CRUDE OIL

GENERAL CHARACTERISTICS

Definition and Importance of Crude Oil

• Crude oil is a hydrocarbon mixture found in liquid form in natural underground reservoirs, constituting approximately 60% of the world’s primary energy consumption.
• Its significance extends across various industries, including transportation, petrochemicals, agriculture, and manufacturing of products like lubricants, pesticides, and asphalt.

Derived Products

• Crude oil processing yields a range of products, including aviation gasoline, motor gasoline, kerosene, jet fuel, lubricants, petroleum coke, and asphalt, among others.

Price Volatility and Economic Impact

• Crude oil prices are highly volatile, impacting inflation, input costs, and investment, particularly in net oil-importing countries.

CATEGORIES OF CRUDE OIL

West Texas Intermediate (WTI) Crude Oil

• WTI crude oil is characterized by its high quality, with a high API gravity (light crude) and low sulfur content (sweet crude).
• Typically priced at a premium to OPEC Basket and Brent prices due to its quality attributes.

Brent Crude Oil

• Serves as a benchmark for Europe’s crude oil pricing.

Oil Dependence in India

• India relies heavily on oil imports, particularly from the Middle East, and is identified as a key buyer by OPEC.
• Oil constitutes about 30% of India’s total energy consumption, with approximately 70% of its oil needs met through imports.

GLOBAL SCENARIO

CRUDE OIL UNITS (AVERAGE GRAVITY)

• 1 US barrel = 42 US gallons.
• 1 US barrel = 158.98 litres.
• 1 tonne = 7.33 barrels
• 1 short ton = 6.65 barrels
• Note: barrels per tonne vary from origin to origin.

Global Oil Consumption

• Oil accounts for 40% of the world’s total energy demand, with a daily consumption of approximately 76 million barrels.

Top Oil Consuming Countries

• The United States, China, and Japan are among the top oil-consuming nations, with the US leading at 20 million barrels per day.

OPEC FACT SHEET

Overview of OPEC

• OPEC comprises eleven developing countries heavily reliant on oil revenues, controlling nearly 40% of the world’s crude oil and holding about 75% of proven oil reserves.
• OPEC’s exports contribute to 55% of oil traded internationally.

INDIAN SCENARIO

Oil Consumption in India

• India ranks among the top ten largest oil-consuming nations, with oil constituting about 30% of its total energy consumption.
• The country faces a significant supply deficit, with domestic production unlikely to match demand.

Oil Reserves and Refining Capacity

• India’s oil reserves are primarily located in various basins, with notable reserves in Mumbai High, Upper Assam, and Cambay.
• The country’s refining capacity stands at 2.1 million barrels per day, with foreign participation permitted in oil exploration activities.

Government Policies

• India transitioned from Administered Pricing Mechanism (APM) to market-driven pricing for crude and its by-products, allowing fluctuations in line with international prices.
• Initiatives for disinvestment and restructuring of public sector units and complete deregulation of the retail petroleum products sector are underway.

PREVAILING DUTIES & LEVIES ON CRUDE OIL

Particulars	Rates
Basic Customs Duty	10%
Cess	Rs.1800 per metric tonne
NCCD*	Rs.50 per metric tonne
Education cess	2%
Octroi	3%
War fedge	Rs.57 per metric tonne

MARKET INFLUENCING FACTORS

• OPEC output and supply
• Terrorism, Weather/storms, War: Any unforeseen geopolitical factors causing supply disruptions.
• Global demand: Particularly from emerging nations.
• Dollar fluctuations
• DOE / API imports and stocks
• Refinery fires & funds buying

EXCHANGES DEALING IN CRUDE FUTURES

• The New York Mercantile Exchange (NYMEX)
• The International Petroleum Exchange of London (IPE)
• The Tokyo Commodity Exchange (TOCOM)

INTERNATIONAL OIL PRICE VARIATION

Particular	Frequency of % variation
0 to 3.1%	3.2 to 6.2%
6.3 to 9.3%	More than 9.3%
Refiner acquisition cost for Crude oil (composite) – Average monthly price from Apr 01 to Mar 04	8
	16
	4
	>8

MAXIMUM PRICE VARIATION

• Period Considered (Based on data from Apr94 – Mar04): Monthly
• Percentage: 23.25