Black Gold As The World Economic Indicator
Crude oil along with currencies and gold are major indicators of almost all processes happening in the world economic system. The volatility of quotes follows the economic and political events. However, due to a specific character of oil deals for the oil exporters and consumers there is always a certain time lag, which makes the oil deals a much more delicate investment instrument.
Crude oil blends
Brent (Brent Crude) - is a benchmark grade of oil sourced from the North Sea. The grade name comes from mine field in the North Sea, opened in 1970. Actually, the crude oil blends can be called Brent, Oseberg and Forties between the coasts of Norway and Scotland. Brent is one of the key oil brands being sold on the main world oil bourses. The Brent oil price is the basis for price formation since 1971 for almost 40% of oil grades all over the world, particularly, for the Russian oil Urals. That is why this grade is called "benchmark". The price of oil used to be by 1 US dollar per barrel lower than the WTI price and by 1 US dollar per barrel more than so called "OPEC Reference Basket of crudes". However, this parity rate was changed in 2007 and the Brent oil is quoted at premium with the WTI. At present it is a matter of discussion whether further using of the Brent oil brand as a basis for price setting on the world market is reasonable. This is primarily due to the reduction of crude production in the North Sea, which leads to the fall of liquidity and inaccuracies while setting the prices for the blend and other oil grades.
Urals - sour crude oil grade (sulfur content about 1.3%), which represents a crude oil blend, produced in Khanty-Mansiisk autonomous district and Tatarstan. The main producers of the Urals oil are the following companies: Rusneft, Lukoil, Surgutneftegaz, Gazpromneft, TNK-VR and Tatneft. The Russian oil price is determined by discounting of Brent prices, since the Russian oil is believed to be of worse quality due to high sulfur content and hard cyclic carbohydrates. Recently, Russia has taken a series of measures to improve the quality of the Urals oil by excluding the sour tartar oil (in the Republic of Tatarstan new distillation facilities will be built in order to make gasoline from local oil without letting it run in the pipeline.) The West Siberian oil is of acceptable quality. It is known as the Siberian Light brand. In Russia the futures for Urals grade oil are traded on the FORTS market at the RTS stock exchange.
WTI (West Texas Intermediate) - oil brand, which is produced in Texas (USA), the consistence is 40° API, sulfur content - 0,4-0,5 %, mostly used for gasoline manufacturing and that is why this oil grade is in strong demand, especially in the USA and China.
The crude oil market participants
Generally, crude oil reaches the market from oil-extracting enterprises, that can be either small companies or huge corporations. It is logical that a company's influence on the market depends on the volume of the delivered oil. Consequently, other market participants pay a lot of attention to the gold producers´ activity.
This category is constituted by the industrial companies of all economic sectors as well as oil refining and processing companies. The scheme is called a vertically-integrated structure. Such companies produce crude oil, refine it to a finished product (gasoline, mazut etc.), but distribute it in their own retail chain.
Commodity and crude oil markets
In some countries there are separate sectors of the largest markets, which deal with trading, with the crude oil in particular.
The market investors have different interests, thus vesting in the instruments, related to crude oil. Normally, the most popular instruments among the investors of gold market are the futures.
OPEC - the Organization of Petroleum-Exporting Countries the international intergovernmental organization, established by petroleum-refining authorities with the purpose to stabilize the oil prices. The members of this organization are the countries, which economies depend on the profit from crude oil export. The OPEC, as an organization, was created at the conference in Bagdad on September 10-14, 1960. Initially, the following countries were members of the OPEC - Iran, Iraq, Kuwait, Saudi Arabia and Venezuela (the initiator of establishment). Later on, these five countries, were joined by 9 countries: Qatar (1961), Indonesia (1962-2008, November 1, 2008 seceded the OPEC), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973-1992, 2007), Gabon (1975-1994) and Angola (2007). At present time, the OPEC enumerates 12 members, taking into account the changes in the structure in 2007 - a new member of organization Angola and the returning of Ecuador. In 2008, Russia announced about its readiness to become an observer in the cartel.
Crude oil trade
The oil produced across the world is not of the same quality and, consequently, differs in price. The prices depend on the density and the various paraffin admixtures that are added to the oil blends. The standard for the prices is the "Brent" oil grade, which is similar in composition to the one extracted in the North Sea, and the delivery contracts are settled at London raw exchange market. The price for this grade is often quoted by Mass Media.
Mostly, this price is a contract value for Brent oil in the following month. When signing such contract called the futures, the buyer is obliged to pay and accept the delivered product, and the seller - to deliver it to the place indicated.
Futures contracts are being concluded at appropriate bourses and paid away daily at the current market price. The minimal contract volume is 1000 barrels. The main trading floors for the oil deals are the leading stock exchanges, such as NYMEX, CME, РТС and LOE.
Oil was a newsmaker of the last year along with the topic of the global financial crisis. Having reached the maximum of 147.26 USD per barrel on June 11, 2008, it lost 70 % of its price in half of a year. Analytics assumed that the main reason for the falling was overheating of the market caused by speculative capital. From the fundamental point of view, 100 USD per barrel was acceptable, but oil just could not cost 140 USD per barrel.
At last, in late 2008 oil stabilized within the range of 40-50 USD per barrel, and until the spring of this year it fell down to 38-42 USD per barrel. Meanwhile, it was not bound to the dynamics of the American currency, that was significant for it in the first half-year. It is difficult to say if the oil market groped the bottom. If for a half of the year it has been outbidding, then now it is oversold. At that moment the fair price was 101 US dollars and now amid the situation in the world economy new fair price is 70-90 US dollars per barrel. Though, hope of oil quotations reach those levels of 2009 are groundless.
This fundamental factor was crucial in oil rates´ fall in 2008. Financial crisis entailed serious problems in the real sector of economy. Fuel demand started to decrease. At the same time, when oil quotations ascended in the first half-year of 2008, this rise was not corroborated by the oil demand.
In summer, the largest world agencies and investment companies predicted the oil price not to reduce below 100 US dollars per barrel. Moreover, there was a forecast that oil will up to 150-200 US dollars per barrel. Such forecasts are not casual, if the fact, that the biggest investment companies had their own positions on the oil market and recommendations' uprise was on their behalf, is taken into consideration. Major funds' and investment companies' participation in the rally on the oil market became one of the reasons of such fast price fall. Nevertheless, at that time financial crisis overwhelmed the world and nobody cared about fraud on the primary market. The liquidity crisis forced to sell all the assets including primary contracts. Weak macroeconomic data and expectations of the demand for fuel reduction aggravated the situation all over the world.
|Download trading terminal||Open demo account||Open trading account|