Crude oil is a natural, unrefined petroleum product that consists of hydrocarbon deposits in natural pools the earth’s strata. It remains in a liquid state at atmospheric temperature and pressure. Crude oil can vary widely in terms of its colour and consistency and can be any shade between black and yellow, depending on its hydrocarbon percentage. It is nicknamed “black gold”. Crude oil is the raw material that can produce diesel, gasoline, jet fuel and different types of petrochemicals.
Emerging markets like India, China and Latin America have a great impact on the crude oil price since they require increasing amounts of oil to support their economic boom and the rise in energy consumption it inevitably results in. The reserve of crude oil is limited and cannot be increased since it has become difficult to find new oil reserves recently due to the lack of capital for the discovery of new reserves and their extraction. On the other hand, the demand for crude oil increases every day. This also ensures that the crude oil price steadily increases. The crude oil price is a measure of the spot prices of various barrels of oil. The crude oil price today also has a very strong impact on economic development internationally, since it is increasingly needed by all industrialized countries, despite the supplies being limited.
Crude oil production is limited to a small bunch of companies, which are normally located in obscure locations that are far away from the points of trade and consumption. Despite this, trade in crude oil has always been vigorous. Around 80% of the crude oil is transported via water in large tankers internationally. Around 50 % of the world’s oil reserves are located in the Middle East, followed by Africa and North America. OPEC controls 40 % of the crude oil in the world, and 55% of the international oil trade is overlooked by it.
Risk Factors to Consider
In the trade of oil, risk management techniques are essential for the different stakeholders and participants, like the producers, marketers, processors and exporters. Recently developed techniques and strategies offered by the MCX like Crude Oil Features (which is a market-based instrument for risk management) help improve efficiency and competitiveness through risk management.
Besides being the most important source of energy, crude oil is also an indispensable raw material for the production of plastic which is used to make everything from plastic bags to heart valves. Crude oil is also used in medicine and cosmetic industries. It is also used to make carbon fibre for aircraft and petroleum products. Crude oil, when mixed with other chemicals is the raw material for around 6,000 products. Crude oil is considered to be the world’s most important commodity since it is required to manufacture other essential materials.
Crude oil is undoubtedly one of the world’s most important sources of energy. It is indispensable to the manufacture of essential items like fertilizer, insecticides, soap, and vitamin capsules. The crude oil price plays a vital role in the industrial and economic growth of nations simply because crude oil is required in the production of almost every essential commodity in our day to day lives. The crude oil price in India is INR 3,802 per barrel.