Brochures CrudeOil

8/2/2019 Brochures CrudeOil

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CRUDE OIL


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C ru de o il ho lds pro m inence as inpu t to the glo b al gro w th engine since it is the m o st im po rtant so u rce o f energy

acco u nting f o r m o re than tw o f if th o f the glo b al energy co nsu m ptio n. C ru de o il do m inates the to tal energy su pply w ith

3 3 % share ( F igu re 1 ) .

The prim ary characteristics stu died w hile evalu ating cru de o il q u ality are the f o llo w ing.

I. AP I ( Am erican P etro leu m Institu te) gravity is a m easu re o f ho w heavy o r light cru de o il is co m pared to w ater. The

higher the AP I, the lighter is cru de and y ields m o re ref ined pro du cts.

II . S u lphu r L o w er the su lphu r, sw eeter is cru de. S w eet cru de y ields higher valu e petro leu m pro du cts su ch as gaso line.

Theref o re light sw eet cru de o il y ields higher pro po rtio n o f su perio r q u ality o f petro leu m pro du cts su ch as gaso line than

heavy and so u r variety o f cru de and are traded at a prem iu m . C ru de o il is classif ied into 1 6 1 varieties b ased o n their AP I

gravity and su lphu r co ntent ( F igu re 3 ) . The pro m inent ' b enchm ark ' v arieties o f cru de o il are B rent C ru de O il and L ight

S w eet C ru de O il ( W TI) w hich are traded ex tensively in the glo b al f u tu res m ark et.

The valu e o f cru de o il is entirely determ ined b y the petro leu m pro du cts ( su ch as gaso line) w hich are derived thro u gh

ref ining cru de and its u se as a f eedsto ck f o r pro du ctio n o f petro chem ical pro du cts su ch as f ertiliser and P V C . C ru de o il is

ref ined to m ak e petro leu m pro du cts gro u ped u nder three catego ries: light distillates ( liq u ef ied petro leu m gas,

gaso line/ petro l) , m iddle distillates ( k ero sene, diesel) and heavy distillates ( heavy f u el o il, l u b ricating o il, w ax ) .

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FIGURE 2: CRUDE OIL - VALUE CHAIN PARTICIPANTSFIGURE 2: CRUDE OIL - VALUE CHAIN PARTICIPANTS

FIGURE 1: FUEL SHARE IN TOTAL PRIMARY ENERGY SUPPLY (2008)FIGURE 1: FUEL SHARE IN TOTAL PRIMARY ENERGY SUPPLY (2008)

Source: IEA

INTRODUCTIONINTRODUCTION

P ro du ctio n / E x tractio n o f

il

E x plo ratio n o f N ew O il

R eserves

Transpo rtatio n to

R ef ineries

D istrib u tio n & S ale to ref ined

pro du cts to end u sersR ef ining


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Maga (Mexico)

Arab

Heavy

Kuwait

(Kuwait)

Dubai (UAE)

Mars

(US)

Arab Light (Saudi)

Oman (Oman)

WTI(US)

Brent (UK)

Bow River

Oriente

(Ecuador)

ANS (US)

Bonnty Lt.

(Nigeria)

BCF-17

(Venezuela)

Daqing

(China)

Minas(Indonesia)0

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20 25 3 0 3 5 4 0

H eavy ..........AP I G ravity ( D egree) .........L ightS o u rce : The Internatio nal C ru de O il Mark et R epo rt

eet..........

lph

r

ntent

.........

r

SUPPLY OF CRUDE OILSUPPLY OF CRUDE OIL

S u pply o f cru de o il is no t respo nsive to change in prices in the sho rt ru n im pro ving o nly in the lo ng ru n. The o nly w ay su pplies

can increase in sho rt ru n is draw ing do w n o n strategic reserves. H o w ever elevated prices f o r a lo ng perio d can spu r ex plo rato r y

activity leading to j u m p in su pplies in the lo ng ru n.

P ro ven reserves o f cru de are an indicato r o f q u antu m o f su pply o f cru de o il. C ru de o il reserves m eet the criteria o f pro ven

reserves if they are f easib le co m m ercially to ex tract given the state o f techno lo gy . As o f 2009 , ab o u t 77% o f pro ven reserves

w ere w ith O P E C lead b y S au di Arab ia w hich ho lds 1 9 % o f the glo b al pro ven reserves. R u ssia leads the no n- O P E C gro u p w ith 6 %

o f glo b al pro ven reserves.

FIGURE 3:GRADES OF CRUDE OILFIGURE 3:GRADES OF CRUDE OIL

FIGURE 4: PROVEN RESERVES OF CRUDE OIL (2010)FIGURE 4: PROVEN RESERVES OF CRUDE OIL (2010)

Source: BP's Statistical Review of World Energy 2011

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O f the m aj o r pro du cers o f cru de o il, the U S A and C hina do no t ex po rt cru de o il. S au di Arab ia ex po rts m o re than three f o u rth

o f its pro du ce w hile R u ssian F ederatio n and Iran ex po rt appro x im ately half o f the pro du ce.

Middle E ast co ntinu es to b e the m o st do m inant pro du cer am o ngst pro du cing regio ns w ith 3 0% share in cru de o il

pro du ctio n in 2009 ( F igu re 5 ) . The shares o f all regio ns ex cept Middle E ast and C hina have no t u ndergo ne signif icant change

in last f o u r decades in to tal cru de o il pro du ce. The share o f Middle E ast has declined b y 7% in the sam e perio d as a resu lt o f

increase in pro du ctio n b y o ther regio ns.

Source: IEA

FIGURE 5: REGIONAL SHARE IN CRUDE OIL PRODUCTION (2009)FIGURE 5: REGIONAL SHARE IN CRUDE OIL PRODUCTION (2009)

Source: BP's Statistical Reviewof World Energy 2011

FIGURE 6: NET EXPORTERS OF CRUDE OIL (2008)FIGURE 6: NET EXPORTERS OF CRUDE OIL (2008)

C ru de o il dem and has a seaso nal pattern increasing prio r to the w inter heating seaso n. U psu rge in dem and f o r gaso line

du ring w inter m o nths o ccu rs aro u nd the C hristm as and N ew Y ear eve as ho liday travel increase adding to the dem and f o rcru de o il in the prio r m o nths. D em and f o r cru de o il declines in D ecem b er as ref iners sharply cu rtail pu rchases to avo id y ear-

end invento ry tax es. D em and is w eak in F eb ru ary du e to redu ced dem and f o r heating o il f o llo w ed b y rise in March to May

prio r to U S driving seaso n. R ef ineries gear u p m eet gaso line and j et f u el dem and since m o st travelling in the no rthern

hem isphere is do ne in su m m er. C o nsu m ptio n o f heating o il declines b etw een J u ne and Au gu st.

DEMAND FOR CRUDE OILDEMAND FOR CRUDE OIL


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R espo nsiveness o f o il dem and to changes in price as m easu red b y the price elasticity o f dem and is cru cial to u nderstand

dem and f o r cru de o il. The im pact o f change in price is dif f erent in develo ped and em erging eco no m ies. D em and in

develo ped eco no m ies is m o re respo nsive to changes in price as co m pared to that in em erging eco no m ies. U nited S tates

co ntinu es to b e the largest im po rter o f cru de o il. C hina o verto o k J apan as the largest im po rter f o r the f irst tim e in May o f 2008

altho u gh J apan retained its po sitio n f o r the y ear. In 2009 , C hina o verto o k J apan as the seco nd largest im po rter o f cru de o il.

India is the f o u rth largest im po rter o f cru de o il ( F igu re 7) .

FIGURE 7: NET IMPORTER OF CRUDE OIL (2008)FIGURE 7: NET IMPORTER OF CRUDE OIL (2008)

MOVEMENT IN CRUDE OIL PRICESMOVEMENT IN CRUDE OIL PRICES

FIGURE 8: HISTORICAL MOVEMENT IN CRUDE OIL PRICES

D ata S o u rce: B P ' s S tatistical R eview o f W o rld E nergy 201 0

* D ata S o u rce: R eu ters ( Average price o f dated B rent f o r 201 0 & 201 1 ( till J u ly 201 1 ) )

1 9 71 - 1 9 8 3 : Arab ian L ight

1 9 8 4 - 201 1 : D ated B rent

Main factors impacting crude oil prices are: G eo - po litical u ncertainties S tate o f the w o rld eco no m y S easo nal f acto rs ( w eather co nditio ns) P o licies o n tax atio n G o vernm ent interventio n in the o il indu stry Availab le strategic reserves o f cru de o il Availab le spare capacity

Source: IEA


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LIGHT SWEET CRUDE OILLIGHT SWEET CRUDE OIL

The Indian B ask et o f cru de o il co m prises o f O m an and D u b ai f o r so u r grades and B rent f o r sw eet grade in an appro x im ate 6 0-

4 0 ratio . Alm o st 70% o f cru de o il im po rt to India is so u rced f ro m Middle E ast and N o rth Af rica w hich is priced against B rent.

Theref o re B rent variety o f cru de o il is ex trem ely relevant to India. The glo b al price m o vem ent in B rent has direct b earing o n

the price o f Indian cru de o il.

L ight sw eet cru de o il/ W est Tex as Interm ediate ( W TI) is the b enchm ark cru de o il variety f ro m the U S . The variety is lighter and

sw eeter than the B rent cru de o f E u ro pe. W TI is landlo ck ed cru de transpo rted thro u gh pipelines acro ss the U S . The pipeline

sy stem is laid thro u gh this term inu s co nnecting the G u lf C o ast ref iners w ith the co nsu m ers.

N Y ME X lau nched the f u tu res co ntract o n W TI in 1 9 8 3 , w hich w ithin a decade w ent o n to b eco m e glo b al b enchm ark in the

cru de o il derivatives space. P ipeline term inu s at C u shing, O k laho m a is the delivery centre f o r the N Y ME X derivatives co ntract

o n W TI. D espite no internatio nal trade, W TI enj o y s b enchm ark statu s prim arily du e to the f act that it is the u nderly ing

co m m o dity o f the light sw eet cru de o il f u tu res traded o n N Y ME X w hich draw s large vo lu m es.

BRENTBRENT

B rent is a b enchm ark f o r pricing o f cru de o il internatio nally . B rent cru de is ex tracted in the N o rth S ea, and is sea- b o rne,

rendering assu rity o f su pply w ithin sho rt perio d o f tim e and vo lu m e to trade. Mo st o f the cru de o il pro du ced in the Middle

E ast and N o rth Af rica ( ME N A) are priced at a dif f erential to B rent. B rent is u sed f o r pricing o f ab o u t tw o third o f the to tal

cru de o il trade. The f u tu res co ntract in B rent w as lau nched b y Internatio nal P etro leu m E x change ( IP E ) , no w IC E F u tu res

E u ro pe, in J u ne 1 9 8 8 . G iven its b enchm ark statu s, B rent cru de enj o y s a liq u id spo t, f o r w ard and f u tu res m ark et.

FIGURE 9: NEAR MONTH PRICES OF BRENTFIGURE 9: NEAR MONTH PRICES OF BRENT

FIGURE 9: NEAR MONTH PRICES OF WTIFIGURE 9: NEAR MONTH PRICES OF WTIFIGURE 10: NEAR MONTH PRICES OF WTIFIGURE 10: NEAR MONTH PRICES OF WTI

Source: Reuters

Source: Reuters


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FIGURE 11: WTI BRENT NEAR MONTH FUTURES SPREADFIGURE 11: WTI BRENT NEAR MONTH FUTURES SPREAD

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S preads b etw een prices o f B rent and W TI are actively traded internatio nally . If a trader ex pects the B rent to rise m o re ( o r f all

less) relative to W TI prices, the trader w o u ld ty pically b u y B rent co ntract and sell the W TI. C o nversely , if the trader ex pects B rent

prices to f all m o re ( o r rise less) relative to W TI prices, the traders w o u ld ty pically sell the B rent co ntract and b u y the W TI

co ntract.

L ight S w eet C ru de O il b eing lighter and sw eeter than B rent C ru de O il, s ho u ld no rm ally

trade at a prem iu m to B rent. F u tu res co ntract o n W TI has histo rically traded at a prem iu m

to the B rent cru de o il. The m edian spread o f the tw o co ntracts since inceptio n has b een

1 , w ith o u tliers ranging b etw een a prem iu m o f 1 5 o n S eptem b er 22, 2008 and disco u nt

o f 27 o n S eptem b er 6 , 201 1 f o r review perio d ending S eptem b er 8 , 201 1 .

The spread has w idened signif icantl y and tu rned negative since J anu ar y 201 1 .W TI pricesw ere depressed early in the y ear b ecau se o f sto ck piles at C u shing reaching the capacity

w hile o u tf lo w w as lim ited. Meanw hile B rent f u tu res w idened the gap against W TI w ith

redu ced su pply f ro m the o il ex po rting natio ns o f Middle E ast and N o rth Af rica hit b y

po litical tu rm o il. B rent is u sed f o r pricing sale o f cru de o il f ro m the af f ected regio n.

SPREAD BETWEEN BRENT CRUDE OIL AND LIGHT SWEET CRUDE OILSPREAD BETWEEN BRENT CRUDE OIL AND LIGHT SWEET CRUDE OIL

Source: Reuters


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C ru de o il

All C ru desW hich S atisf y

The F o llo w ing3 7- 4 2 degrees

L ess than o req u al to 0.4 2%

AP I G ravity S u lphu r C o ntentC ru de Ty pe

B rent 3 8 .5 degrees 0.3 6 %

AP I G ravity S u lphu r C o ntent

CONTRACT SPECIFICATIONS

Closing of cont ract

Price limi t

Posit ion limits

Posit ion limits

Posit ion limits

Delivery logic

Name of Commodi ty

Ticker symbol

Unit of trading

Quotation/base value

Basis

Tick sizeQuali ty specif ication

All o pen po sitio ns f o r w hich deliver y intentio ns have

no t b een received o r f o r w hich deliver y intentio ns

have b een rendered b u t rem ain u nm atched f o r

w ant o f co u nterparty to settle delivery w ill b e cash

settled at the F inal S ettlem ent P rice o n the ex pir y

o f the co ntract.

Intentio n m atching Intentio n m atching

B rent C ru de O il L ight S w eet C ru de O il

B R E N TC R U D E C R U D E O IL

1 00 B arrels 1 00 B arrels

R s per b arrel* R s per b arrel*

S u llo m V o e, S hetland Islands, U nited K ingdo m

ex cl u sive o f all levies and tax es.

F O B C u shing, O k laho m a, U nited S tates o f Am erica

ex clu sive o f all levies and tax es

R e 1 .00 R e 1 .00

B ase daily price f lu ctu atio n lim it is ( + / - ) 4 % . If the

trade hits the prescrib ed daily price lim it, the price

lim its w ill b e relax ed u p to ( + / - ) 6 % w itho u t any

b reak / co o ling o f f perio d in the trade. In case the

daily price lim it o f ( + / - ) 6 % is b reached, then af ter a

co o ling o f f perio d o f 1 5 m inu tes, the daily price lim it

w ill b e f u rther relax ed u p to ( + / - ) 9 % . Trade w ill b e

allo w ed du ring the co o ling o f f perio d w ithin the

price b and o f ( + / - ) 6 % .In case o f price m o vem ent in

Internatio nal m ark ets w hich is m o re than the

m ax im u m daily price lim it ( c u rrently 9 % ) ,

the sam e m ay b e f u rther relax ed in steps o f 3 % w ith

the appro val o f F MC .

B ase daily price f lu ctu atio n lim it is ( + / - ) 4 % . If the

trade hits the prescrib ed daily price lim it, the price

lim its w ill b e relax ed u p to ( + / - ) 6 % w itho u t any

b reak / co o ling o f f perio d in the trade. In case the

daily price lim it o f ( + / - ) 6 % is b reached, then af ter a

co o ling o f f perio d o f 1 5 m inu tes, the daily price lim it

w ill b e f u rther relax ed u p to ( + / - ) 9 % . Trade w ill b e

allo w ed du ring the co o ling o f f perio d w ithin the

price b and o f ( + / - ) 6 % .In case o f price m o vem ent in

Internatio nal m ark ets w hich is m o re than the

m ax im u m daily price lim it ( cu rrently 9 % ) , the sam e

m ay b e f u rther relax ed in steps o f 3 % w ith the

appro val o f F MC .

All o pen po sitio ns f o r w hich delivery intentio ns have

no t b een received o r f o r w hich delivery intentio ns

have b een rendered b u t rem ain u nm atched f o r

w ant o f co u nterparty to settle delivery , w ill

b e cash settled at F inal settlem ent P rice o n

the ex piry o f the co ntract.

Member: 20, 00, 000 b arrels o r 1 5 % o f m ark et w ide

o pen interest , w hichever is higher.

Client: 4 , 00, 000 b arrels.

The F inal S ettlem ent P rice ( F S P ) in Indian R u pees

( IN R ) w ill b e determ ined b y the E x change o n

m atu rity o f the co ntract. The F S P w ill b e the valu e o f

B rent Index pu b lished b y Interco ntinental E x change

( IC E ) f o r a sim ilar co rrespo nding co ntract ex piring o n

IC E . The ex change rate to b e u sed as the co nversio n

f acto r shall b e the R B I ref erence spo t ex change rate

o n that day ( as o b tained f ro m R eserve B ank o f India

w eb site w w w .rb i.o rg.in)

Member: 20, 00, 000 b arrels o r 1 5 % o f m ark et w ide

o pen interest , w hichever is higher.

Client: 4 , 00, 000 b arrels.

The F inal S ettlem ent P rice ( F S P ) in Indian R u pees

( IN R ) w ill b e determ ined b y the E x change o n

m atu rity o f the co ntract. The F S P w ill b e the valu e o f

B rent Index pu b lished b y Interco ntinental E x change

( IC E ) f o r a sim ilar co rrespo nding co ntract ex piring o n

IC E . The ex change rate to b e u sed as the co nversio n

f acto r shall b e the R B I ref erence spo t ex change rate

o n that day ( as o b tained f ro m R eserve B ank o f India

w eb site w w w .rb i.o rg.in)

* 1 B arrel = 4 2 U S gallo ns = 1 5 8 .9 8 litres * 1 B arrel = 4 2 U S gallo ns = 1 5 8 .9 8 litres

F o r f u rther details, please ref er to the NCDEX websit e ht tp://www.ncdex.comC o ntact o u r P ro du ct Managers f o r any q u eries/ inf o rm atio n:

Ramesh Iyer : 9820488975

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