Oil Markets: Properties, Production and Reserves

Vincent Kaminski

This chapter will explore some general topics related to the properties of crude oil. One of the biggest differences between natural gas (covered in the previous section) and oil is that the latter is a commodity with multiple grades, with different physical and chemical properties, which translate into differences in market values. A trader always buys or sells a specific grade at a specific location. Even in the case of financial futures with standardised properties of the underlying crude, multiple grades can be usually delivered into a contract. The same is true of refined products for which acceptable specifications vary from location to location and from season to season. The physical components of the industry infrastructure (refineries, pipelines, tankers) are optimised for processing and transporting certain types of crude and products. A typical refinery, for example, is configured for processing certain types of crudes and, if a basket of inputs with different qualities has to be used, profits will be reduced. A trader can create a lot of value if they can match the technological parameters of a refinery with a portfolio of crudes they can acquire in the market.


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