CRUDE OIL

INTRODUCTION

• Crude oil is a naturally occurring, flammable

liquid consisting of a complex mixture
of hydrocarbons.
• Oil and gas account for about 60 per cent of
the total world's primary energy consumption.
• Almost all industries including agriculture are
dependent on oil in one way or other.
• Oil & lubricants, transportation,
petrochemicals, pesticides and insecticides,
paints, perfumes, etc. are largely and directly
affected by the oil prices.
• Aviation gasoline, motor gasoline, naphtha,
kerosene, jet fuel, distillate fuel oil, residual
fuel oil, liquefied petroleum gas, lubricants,
paraffin wax, petroleum coke, asphalt and
other products are obtained from the
processing of crude and other hydrocarbon
compounds.
ENERGY CONSUMPTION
 TYPES OF CRUDE OIL
• Crude oil may be considered as-
 Light- if it has low density
 heavy- if it has high density
 sweet -if it contains relatively little
sulfur
 sour -if it contains substantial
amounts of sulfur.
• The geographic location is important because it
affects transportation costs to the refinery.
• Light crude oil is more desirable than heavy oil
since it produces a higher yield of petrol
• sweet oil commands a higher price than sour oil
because it has fewer environmental problems
• Each crude oil has unique molecular
characteristics which are understood by the use
of crude oil assay analysis in petroleum
laboratories.
 CRUDE OIL UNITS
• 1 US barrel = 42 US gallons.
• 1 US barrel = 158.98 litres.
• 1 tonne = 7.33 barrels .
• 1 short ton = 6.65 barrels .
Note: barrels per tonne vary
from origin to origin.
 VARIETIES OF CRUDE OIL
• Two things determining the market value of
crude oil are-DENSITY and SULFUR content.
• Western texas intermediate ( WTI)- a very high-
quality, sweet, light oil physically traded in US.
• One of the largest traded commodities in the
world.
• WTI’s API gravity is between 37 and 42degrees
with 0.24% sulphur content.
• NYMEX is the primary exchange facilitating trade
in futures trade in light sweet crude oil.
 CONTRACT SPECIFICATIONS OF CRUDE OIL
Symbol CRUDE OIL
Description CRUDE OIL MMMYY
No. of contracts a year 12
Contract Duration 3 months
TRADING
Trading period Monday through Saturday
Trading sessions Monday to Friday: 10.00 am to 11.30 pm
Saturday: 10.00 am to 2.00 pm
Trading unit 100 barrels
Maximum order size 10,000 barrels
Tick size(minimum price movement) Re.1
Daily price limits 4%
Price quote Rs. per barrel, Ex- Mumbai
(excluding all taxes, levies and other expenses)
Initial margin 5%
Special margin In case of additional volatility, a special margin as deemed fit, will be imposed
immediately on both the buy and sell side in respect of all outstanding position,
which will remain in force for next 2 days, after which the special margin will be
relaxed.
Maximum allowable open position For individual clients: 4,00,000 barrels. For a member collectively for all clients:
12,00,000 barrels or 15% of the open market position, whichever is higher.
DELIVERY
Delivery unit 50,000 barrels with + / - 2% tolerance limit.
Delivery center(s) Port installation at Mumbai / JNPT
QUALITY SPECIFICATIONS
Light Sweet Crude Oil confirming to the following quality specification is deliverable:
Sulphur : 0.42% by weight or less
API Gravity: Between 37-42 degrees
All volumes are defined at 60 degrees Fahrenheit
 BRENT CRUDE OIL
• A grade from the north sea ,UK,Brent is a pricing
benchmark for crude from Europe and Africa.
• With API 39 degrees and 0.4% or less sulphur
content by weight.
• It is the second most traded variety in the world.
• Brent Crude Oil stands as a benchmark for
Europe.
• Brent Crude futures are traded on the New York
Mercantile Exchange under ticker symbol BZ.
Futures contracts are delivered every month of
the year.
 CONTRACT SPECIFICATIONS OF BRENT CRUDE OIL
Symbol BRENT CRUDE OIL

Description BRENT CRUDE MMMYY

No. of contracts a year 12

Contract Duration 3 months

TRADING

Trading period Monday through Saturday

Trading sessions Monday to Friday: 10.00 am to 11.30 pm

Saturday: 10.00 am to 2.00 pm

Trading unit 100 barrels

Maximum order size 10,000 barrels

Tick size(minimum price movement) Re.1

Daily price limits 4%

Price quote Rs. per barrel, Ex- Mumbai

(excluding all taxes, levies and other expenses)

Initial margin 5%

Special margin In case of additional volatility, a special margin as deemed fit, will be imposed immediately on both the buy
and sell side in respect of all outstanding position, which will remain in force for next 2 days, after which the
special margin will be relaxed.

Maximum allowable open position For individual clients: 1,50,000 barrels. For a member collectively for all clients: 6,00,000 barrels or 20% of the
open market position, whichever is higher.

DELIVERY

Delivery unit 50,000 barrels with + / - 2% tolerance limit.

Delivery center(s) Port installation at Mumbai / JNPT

QUALITY SPECIFICATIONS

Brent Blend confirming to the following quality specification is deliverable:

API Gravity: Between 38-39 degrees
Sulphur : 0.4% by weight or less
 MIDDLE EAST CRUDE OIL
• Dubai-Oman, used as benchmark for Middle East
sour and heavy crude oil flowing to the Asia-
Pacific region.
• It has a gravity of 31° API and a sulfur content of
2% weight.
• It is a variety with a very large market in the gulf
region.
• Indian refineries use crude benchmarked against
middle east sour crude oil.
• TOCOM is prominent futures trading platform to
trade in this grade.
CONTRACT SPECIFICATIONS OF MIDDLE EAST SOUR CRUDE
OIL
Symbol ME CRUDE
Description ME CRUDE MMMYY
No. of contracts a year 12
Contract Duration 3 months
TRADING
Trading period Monday through Saturday
Trading sessions Monday to Friday: 10.00 am to 11.30 pm
Saturday: 10.00 am to 2.00 pm

Trading unit 100 barrels

Maximum order size 10,000 barrels
Tick size(minimum price 50 Paisa
movement)

Daily price limits 4%

Price quote Rs. per barrel, Ex- Mumbai
(excluding all taxes, levies and other expenses)
Initial margin 5%

Special margin In case of additional volatility, a special margin as deemed fit, will be
imposed immediately on both the buy and sell side in respect of all
outstanding position, which will remain in force for next 2 days, after
which the special margin will be relaxed.

Maximum allowable open For individual clients: 1,00,000 barrels; For a member collectively for all
position clients: 25% of the open market position.

DELIVERY

Delivery unit 50,000 barrels with + / - 2% tolerance limit.

Delivery center(s) Port installation at Mumbai / JNPT

QUALITY SPECIFICATIONS

Middle east south sour crude oil either of Dubai or Oman origin with the following
specification:
Sulphur : 2.05% by weight or less
API Gravity: Between 31-37%
 OPEC
• 'Organization of Petroleum Exporting
Countries‘was founded in 1960 in baghdad.
• It is an organization of eleven developing
countries that are heavily dependent on oil
revenues as their main source of income.
• The current Members are Algeria, Indonesia,
Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi
Arabia, the United Arab Emirates and
Venezuela.
• OPEC controls almost 40 percent of the world's crude
oil.
• It accounts for about 75 per cent of the world's proven
oil reserves.
• Its exports represent 55 per cent of the oil traded
internationally.
• The OPEC has identified China & India as their main
buyers of oil in Asia for several years to come.
 CAUSES OF HIGH CRUDE OIL PRICES
• Shortage of oil supplies.
• Balance of demand and supply in short time.
• Rate of investment in the longer term.
• If traders in the oil market believe there will
be a shortage of oil supplies, they may raise
prices before a shortage occurs.
• War.
• Natural disasters.
 CAUSES OF LOW CRUDE OIL PRICES.
• Imbalance between supply
and demand.
• If oil production rises faster
than demand.
• If the oil industry is
unprofitable and discourages
investors.
 INDIAN SCENARIO
• India ranks among the top 10 largest oil-
consuming countries.
• Oil accounts for about 30 per cent of India's total
energy consumption.
• The country's total oil consumption is about 2.2
million barrels per day.
• India imports about 70 per cent of its total oil
consumption and it makes no exports.
• India faces a large supply deficit, as domestic oil
production is unlikely to keep pace with demand.
• India's rough production was only 0.8 million
barrels per day.
• The oil reserves of the country (about 5.4
billion barrels) are located primarily in
Mumbai High, Upper Assam, Cambay, Krishna-
Godavari and Cauvery basins.
• India had a total of 2.1 million barrels per day
in refining capacity.
• Government has permitted foreign
participation in oil exploration, an activity
restricted earlier to state owned entities.
• IOCL is the largest refinery co. in india.
• RPL’s jamnagar refinery is the largest in india
and third largest in world.
 MCX CRUDE OIL FUTURES
• MCX was the first to start crude oil futures in
india in 2005.
• Crude oil accounts for 25 per cent of the
country’s import bill
• Volatility in crude oil prices affects the
economic scenario quite adversely.
• High oil prices lead to inflation, increased
input costs, reduced non-oil demand and
lower investment in net oil importing
countries
• Transporters and Airline companies can hedge
the risk of rising Diesel/Petrol prices by taking a
hedge in Crude Oil futures .

• MCX is providing a platform for all the above

categories of businesses and the common man.

• The Crude Oil contracts would be attractive for

those who want to hedge for their business
requirements as well as for those who want to
seek cover against rising inflation.
 RUPEE Vs CRUDE OIL PRICES.
• As crude oil prices are designated in dollars,
any weakening of the rupee makes oil more
costly.
• The average price paid by India for imported
crude oil fell to Rs 5,784 per barrel from Rs
5,825 per barrel a month ago.
• The dip was caused by a strengthening of the
Indian rupee against the dollar.
 GLOBAL SCENARIO
• Oil accounts for 40 per cent of the world's total
energy demand.
• The world consumes about 76 million bbl/day of
oil.
• United States (20 million bbl/d), followed by
China (6.9 million bbl/d) and Japan (5.4 million
bbl/d) are the top oil consuming countries.
• Balance recoverable reserve was estimated at
about 142.7 billion tones (in 2002), of which
OPEC was 112 billion tones
World Demand Supply Balance
 Top World Oil Producers, Exporters, Consumers and Importers, 2004
(in millions of barrels per day)
Sr. No Producers Total Oil Exporters Net Oil Consumers Total Oil Importers Net Oil
Production Exports Consumptio Imports
n
1 Saudi 10.37 Saudi 8.73 USA 20.5 USA 11.8
Arabia Arabia

2 Russia 9.27 Russia 6.67 China 6.5 Japan 5.3

3 USA 8.69 Norway 2.91 Japan 5.4 China 2.9

4 Iran 4.09 Iran 2.55 Germany 2.6 Germany 2.5

5 Mexico 3.83 Venezuela 2.36 Russia 2.6 South Korea 2.1

6 China 3.62 UAE 2.33 India 2.3 France 2

7 Norway 3.18 Kuwait 2.2 Canada 2.3 Italy 1.7

8 Canada 3.14 Nigeria 2.19 Brazil 2.2 Spain 1.6

9 Venezuela 2.86 Mexico 1.8 South Korea 2.1 India 1.5

10 UAE 2.76 Algeria 1.68 France 2.0 Taiwan 1

11 Kuwait 2.51 Iraq 1.48 Mexico 2.0

12 Nigeria 2.51 Libya 1.34

13 UK 2.08 Kazakhstan 1.06

 DOLLAR Vs CRUDE OIL PRICES.
• The dollar and oil tend to move in
opposite directions.
• If dollars depreciate, then
commodities priced in dollars will
tend to rise and vice versa.
• During recession USD lost its value
which led to increase in
energy and commodity prices.
 UNDERSTANDING CRUDE OIL
CONTRACTS
• Crude oil has its own ticker symbol, contract value and
margin requirements.
• The margin changes based on market volatility and the current face
value of the contract.
• For instance, if you choose to buy or sell a crude oil futures contract,
you will see a ticker tape handle that looks like this:
CL8K @105.52.
• Means : "Crude Oil (CL) 2008 (8) May (K) at $105.52/barrel (105.52).“
• The value of a commodities contract is based on the current price of
the market multiplied by the actual value of the contract itself. In
this instance, the crude oil contract equals the equivalent of 1,000
barrels multiplied by our hypothetical price of $105.52, as in:
$105.52 x 1,000 barrels = $105,520
 LONG CRUDE OIL FUTURES TRADE.
• If you are bullish on crude oil, you can profit from
a rise in crude oil price by taking up a long
position in the crude oil futures market. i.e by
buying more future contracts.
Long Crude Oil Futures Strategy: Buy LOW, Sell HIGH

BUY 1000 barrels of crude oil at USD 44,200

USD 44.20/barrel
SELL 1000 barrels of crude oil at USD 48,620
USD 48.62/barrel
Profit USD 4,420
Investment (Initial Margin) USD 12,825
Return on Investment 34.46%
 SHORTCRUDE OIL FUTURES TRADE.
• If you are bearish on crude oil, you can profit
from a fall in crude oil price by taking up a Short
position in the crude oil futures market. i.e by
selling future contracts.
Short Crude Oil Futures Strategy: Sell HIGH, Buy LOW

SELL 1000 barrels of crude oil at USD USD 44,200

44.20/barrel

BUY 1000 barrels of crude oil at USD USD 39,780

39.78/barrel

Profit USD 4,420

Investment (Initial Margin) USD 12,825
Return on Investment 34.46%
 IS IT WORTH INVESTING?
MERITS DEMERITS
• High Liquidity • High volatility
Internationally
• Easy Trading Concept. • Sensitivity top several
• High Profitability Levels factors
• Round-The-Clock • Threats from substitutes
Trading • High risk.
• Leverage
 CONCLUSION
• Crude Oil is one of the most liquid and interesting
commodities in the financial world.
• As Crude oil, trading carries high profit along with
significant risk.
• Every individual trader can buy and sell these
contracts with an investment as little as $1,000.
• The only thing you need is a lot of discipline and a
strong stomach; oil trading is extremely volatile
and you’ll be in for a bumpy ride!
 BIBLIOGRAPHY
• www.wtrg.com/daily/crudeoilprice.html
• www.futurescrude.com/
• www.oilscenarios.info/oilbasics.htm
• www.theoptionsguide.com/crude-oil-futures-
long-hedge.aspx
• www.crudeoiltrade.com/
• www.mcxindia.com
 PRESENTED BY:
• AISHWARYA BALAKRISHNAN 01
• RIDDHI BAVISHI 06
• TWINKLE CHHADWA 08
• RIYA JAIN 14
• SHEFALI SAVLA 36
• MITU SOMANI 45
• JAGRUTI VORA 51

THANK YOU!!!