The use of crude oil was recorded over 5000 years ago by the ancient Babylonian and Sumerian civilizations. It has been the world’s most important source of energy since the mid-1950s. Today, oil supplies around 34 per cent of the world’s energy needs.
What is oil made from?
The oil extracted from the earth for energy purposes is often referred to as a fossil fuel. This is due to the commonly held theory it is formed when the build-up of organic material and fossil remains is pressurised over time by layers of sediment, causing a breakdown of this material into hydrocarbons.
Crude oil, or virgin oil, is found in various states of density and composition. When you think of crude oil, you may recall images of thick black liquid bubbling up from the earth. However, crude oil varies greatly in appearance, from a light watery golden yellow, through to thick deep black. Its various forms and origins have earned nicknames such as ‘black gold’, ‘Texas tea’, ‘bubbling crude’ and ‘dinosaur juice’.
As a general rule, crude oil is roughly 85% carbon, with the remainder composed of hydrogen, nitrogen, oxygen, sulphur and trace amounts of metals. The composition of oil varies greatly between oil fields. The proportion of light hydrocarbons ranges from as much as 97% by weight in the lighter oils, to as little as 50% in the heavier oils and bitumens.
Crude oil is referred to as "sweet" if it contains less sulphur and "sour" if it contains more sulphur.
Classifications of crude oil
There are different classifications of crude oil on the global market, the most common of which are:
- Brent Blend – This classification of oil is typically sourced from the North Sea, and is used to price two-thirds of all internationally traded crude oil. It is a light, sweet crude, though not as light as West Texas International. Petroleum exported west from Africa, Europe or the Middle East is usually priced under this classification.
- Dubai Crude – This oil is light and sour, and is extracted from Dubai. It is used as a price benchmark for near-term oil exports because it is one of the only Persian Gulf oils available immediately. Also known as “Fateh”, the benchmark is also used for pricing Persian Gulf crude exports to Asia.
- OPEC Reference Basket (ORB) – This oil is sourced from OPEC member countries including Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. The OPEC basket includes both light and heavy crude sources, but is generally heavier than both Brent Blend and West Texas International.
- West Texas Intermediate (WTI) – This oil is a light, sweet crude. It is both lighter and sweeter than Brent Blend crude. WTI is the primary commodity of the Chicago Mercantile Exchange’s oil futures contracts, and the price of WTI is often referenced in news reports alongside the price of Brent Blend.
What is oil used for?
You will often hear oil referred to as petroleum. However, petroleum is a collective term that includes crude oil, condensate and gas. The various forms of petroleum are extracted from the earth using a drilling process, and then further refined into fuels such as LPG, LNG, petrol, gasoline, kerosene, and diesel.
The small percentage of oil (around 16%) not used for energy purposes, is manufactured into products such as paints, solvents, fertilizers, pesticides, plastics, lubricants, pharmaceuticals, and petroleum jelly. The heavier forms of oil are suited to products such as tar, paraffin wax, and asphaltic bitumen.
Where is oil found?
There are oil deposits on every continent; however, not all of them are recognised in the estimate of world oil reserves. Many of the geographic conditions in which oil is found, and its variety of forms, render its recovery difficult and not commercially viable.
The CIA’s World Factbook estimated the world’s oil reserves at approximately 1,394 billion barrels at the beginning of 2010. One standard barrel (bbl) is 159 litres or 42 US gallons.
Major producers of oil
The 10 major countries producing oil include Saudi Arabia, Canada, Iran, Iraq, Kuwait, United Arab Emirates, Venezuela, Russia, Libya and Nigeria. Australia has approximately 0.3 per cent of the world’s oil reserves, located mostly in the Carnarvon (Western Australia) and Gippsland (Victoria) basins.
According to theBP Statistical Energy Review 2011, the top 10 oil producing countries in 2010 were:
- Russia, producing 12.9% of total global production
- Saudi Arabia, producing 12.0% of total global production
- USA, producing 8.7% of total global production
- China, producing 5.2% of total global production
- Iran, producing 5.2% of total global production
- Canada, producing 4.2% of total global production
- Mexico, producing 3.7% of total global production
- Venezuela, producing 3.2% of total global production
- Iraq producing 3.1% of total global production
- Kuwait producing 3.1% of total global production
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