Global economy to demand more crude oil

Market Leader informed

The Organization of the Petroleum Exporting Countries (OPEC) has recently released a statistic report, forecasting an increase in the demand for crude oil in 2010-2011. It is expected the in 2010 the growth will reach 1.6% (instead of 1.3% previously expected) while the global consumption volume will reach 85.78 million barrels a day. In 2011 the demand is expected to gain 1.4% more (versus previous 1.2%), up to 86.95 million barrels a day. One of the main reasons for the growth of the demand for crude oil is the increased-beyond-expectation consumption in the developed countries, first of all in the USA and Germany.

As for the demand for the Russian crude oil, in 2010 the OPEC expects the volume to reach 10.1 million barrels a day, which is roughly equal to the volumes produced in Russia.

There are a many different brands of oil, so any oil-producing country exports a few of them. In order to simplify the exports there are some standards of a certain oil brands introduced at the global market. For example, Great Britain produces and exports Brent oil, Norway - Statfjord, Iraq - Kirkuk, USA - Light Sweet, Russia - Urals and Siberian Light. There are countries that produce 2 types of crude oil – light and heavy. For example, in Iran these are Iran Light and Iran Heavy, in Russia - Siberian Light and Urals (the heavy one).

Some “premium” oil brands confuse. For example, the American “standard”, light oil of Western Texas, is both “light” and “sweet”, however it has nothing in common with either the degree of production difficulty or its taste. The attributes only underline that the sulfur content in the oil doesn’t exceed 0.5%. Therefore, such oil is of higher quality and consequently more expensive than Brent or Urals.

What is more confusing is that the OPEC has its own standards, the so-called “basket” of 7 brands, combined proportionally in terms of production volume. 6 of the brands are produced by the OPEC members, the other one – by Mexico. The basket is the guideline which is used by the OPEC to measure the market, determine price ranges or make statements about crude oil prices.

What should investors be waiting for? Within the scope of wave a(C )/C of level W1 the price on “black gold” has got over the important resistance level at 87.11 ( the peak of the W3-4 wave). Experts of the Department of studying Masterforex-V trading system consider that the next important resistance levels are 99.84(123.6%) and 120.46(161.8% + 76.4%). In order to reverse the mid-term movement it is necessary to overcome the defensive MF pivot and come out of the MF Sloping Channel, which act as closest significant resistance levels.

 

 

 

Note:

West Texas Intermediate (WTI) – oil brand produced in Texas (USA). The API density is 39,6°, the relative density is 0.827 kg/m3, the sulfur content is 0,4-0,5 %. It is mainly used for petroleum production, that is why it is in high demand, especially in the US and China.

Brent (Brent Crude) – oil brand produced in the Northern Sea. Brent oil is classified as light oil with low sulfur content (about 0.37%). Its density at 20 °C is about 825—828 kg/m³ (38,6-39 API degrees). Nevertheless, it yields to WTI.

Dubai Crude – oil brand which is produced in Dubai and used as the standard for determining the price on other oil brands produced in the Persian Gulf area.

Urals – crude oil mixture for export. It is made by mixing the heavy oil of the Urals and Povolzhie with the light oil of Western Siberia.

Siberian Light - export mixture on the basis of the light oil of Western Siberia.

In order to feel more confident let’s get acquainted with some other notions. At the global market of oil the major unit of measurement is barrel (as opposed to tons at the Russian internal market). So the price on major oil brands is given in US dollars per barrel. Barrel is just a hollow cylindrical container, which was used in the US to measure crude oil. Nowadays a barrel equals 158.98 liters.

Another notion is the Organization of the Petroleum Exporting Countries (OPEC). It is a cartel of twelve third world countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965,and hosts regular meetings among the oil ministers of its Member Countries. Indonesia withdrew in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter in the world again (Wikipedia). Since January 1, 2007 the post of Secretary General has been held by Abdallah Salem el-Badri.

The OPEC holds recurrent meetings aimed at deciding either on the crude oil prices or on the production volumes. The 2 issues influence each other. If all crude-oil producers will be acting exclusively for their own benefit, it will bring down the prices and revenues. Only the coordinated activity of all the OPEC members can make each of them comply with the agreements.

However, those countries that are not members of the OPEC (Russia, Mexico, Norway) gradually accumulate their reserves and increase the production volumes while the OPEC’s share in the global export of oil keeps declining ( since the foundation of the OPEC it has fallen from 65% down to 30-35%).

The world’s major exchanges engaged in crude oil trading are New York Mercantile Exchange (NYMEX) and London-based International Petroleum Exchange (IPE). Oil contracts are also traded at SIMEX (Singapore International Monetary Exchange).

At NYMEX they trade WTI brand while in London at IPE it is Brent that is traded. The standard lot is 1000 barrels. The minimal step of price change is 1 cent. The prices are measured in USD per barrel.

The truth is that while the daily volume of the oil contracts made at IPE is some 70.000 (at NYMEX - 150.000), the actual volume of delivered oil is only about 1% of the trading volume.

Unfortunately, in Russia, which is among the world’s top oil producers, oil trading at exchange markets is not developed enough.

 

 

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