What is crude oil? Crude oil is the most popular fossil fuel in the world market. Not only ga...
What is crude oil?
Crude oil is the most popular fossil fuel in the world market. Not only gasoline(diesel) is made from crude oil, but also clothes, household chemicals, cellophane, paints, asphalt, about a thousand types of lubricants, tiles, fertilizers, cosmetics, and plastic. Everything else is made from plastic.
Crude oil has been known to mankind since at least the seventh millennium BC. In ancient Babylon, bitumen was used in the construction of buildings and the sealing of ships. It is believed that it was also used in the construction of the Hanging Gardens of Babylon. Baghdad of the 7th century used tar for road construction.
On the basis of crude oil, the “Greek fire” was invented, famous for the fact that when trying to extinguish it with water, it flared up even more. Some types of whales were saved from extermination by the advent of kerosene, a crude oil distillation product that replaced whale oil in lamps.
Then, in the 19th century, crude oil found mass use, first in kerosene lamps and in the form of lubricating compounds for the growing industry, later in the form of naval fuel and, of course, diesel and gasoline internal combustion engines.
Since the invention of the internal combustion engine, a boom in crude oil demand has begun. Since then, world crude oil production has been increasing, and prices have been rising. Crude oil as a source of energy has become comparable in value to gold in the financial sector leading to the new name for it - “black gold”. Crude oil, like gold, provoked its “rushes” in the places where it was found.
According to the Global Energy Statistical Yearbook 2018, crude oil is the most demanded energy resource in the world, which is why crude oil instruments are one of the most actively traded in the financial markets.
Why do we use the term “barrel"?
Typically, the price of crude oil is counted in US dollars per barrel. We are used to hearing the word “barrel”, but how much is a barrel, and what is it all about?
While crude oil was produced in small volumes, it was transported and sold in barrels of various volumes. In the second half of the 19th century, the demand for crude oil increased while there were not enough containers.
Crude oil prices were indicated per barrel, and barrels could be of various sizes (used before for beer, fish, molasses, or turpentine oil), which was inconvenient. Finally, in 1866, oil producers from Pennsylvania, USA, decided to establish a standard crude oil container.
The choice fell on a 42-gallon barrel. Since then, one oil barrel equals 42 US gallons or about 159 liters. Although crude oil is now mainly transported by pipelines, tankers, and 55-gallon
Where do I trade it?
Crude oil is traded on commodity exchanges, mostly using futures contracts. Many forex brokers bring their clients also to other markets (in addition to foreign exchange) in order to allow them to diversify their investment portfolios and offer CFDs for trading.
When buying something this way, there is no supply of raw materials - the broker and the client arrange an agreement that at the time of closing the transaction will be settled based on the accuracy of the client’s forecast. Crude oil is perhaps the only raw material asset available for margin trading with any forex broker.
There are about 200 types of crude oil in the world, each consisting of a mixture of crude oil from several oil fields. So, for example, Brent is a mixture of crude oil from oil fields in the North Sea, and the Urals is a mixture from oil fields in the Ural region and Volga region.
The main properties of any variety are density and sulfur content. Some types, such as Brent (according to the first letters of the oil fields - Broom, Rannoch, Etive, Ness, and Tarbert), WTI (West Texas Intermediate - WTI) and Dubai Crude are called benchmark crude, or marker crude - they have a constant composition and sufficient liquidity in the commodity market. Quotes for these grades are used to determine oil prices in the rest of the world. barrels, it is still measured in barrels.
Why is crude oil trading in dollars?
After the President of the United States stopped the backing of the dollar with gold in 1971, the dollar devalued against gold by 17% in two years. Then, in 1974, William Simon, the U.S.
Treasury secretary under the Nixon administration reached an agreement with Saudi Arabia that it would sell crude oil in dollars and invest these dollars in the American economy, and for that would receive military assistance and protection of oil fields.
Following the example of Saudi Arabia, in 1975, all OPEC member countries began selling crude oil for US dollars. So, by 1980, 80% of the world's oil was sold for dollars. This situation did not last long, however, it occurred precisely at the time of reformatting the oil market for exchange trading, where all trading had already been in dollars. Continue reading with Litefinance.com