The Price Variations in

Crude Oil

Intro

Crude oil is one of the most basic global commodities.

Fluctuation in the crude oil prices has both direct and indirect impact on
the global economy.

Crude oil prices have gone up to record levels of USD 125 per bbl (rise of
around 70 percent from previous year's levels).

In 1961, the oil price per barrel was 1.57 U.S. dollars.

The abbreviation OPEC stands for Organization of the Petroleum

Exporting Countries.(Angola, Ecuador, Indonesia, Iraq, Iran, Qatar,
Kuwait, Libya, Nigeria, Saudi Arabia, Venezuela and the United Arab
Emirates)

Crude oil accounts for 35% of the world's primary energy consumption.

Global proven oil reserves in 2011 was around 1652.6 thousand million
barrels, of which the OPEC had 1196.3 thousand million barrels.

Global oil demand was 88.3 million barrels per day (mmb/d) in 2011, an
increase of around 0.7% from the previous year.

In 2010, Russia, Saudi Arabia, the US and Iran were the top oil producing
countries. Although the US is the world's third largest oil producing
nation, it is the world's largest consumer and importer of oil followed by
China, Japan and India.

Oil accounts for 29% of India's total energy consumption and there
seems to be no possibility of scaling down the dependence on these
fuels.

The Government of India realized the need to explore more areas and
has implemented New Exploration Licensing Policy (NELP), according to
which 100% FDI is permitted for small and medium sized oil fields
through competitive bidding.

Crude oil production during the period April-March 2012 (provisional)

was 38.19 million metric tone (MMT), as compared with 37.71 MMT
during the corresponding period last year.

Price Moving Factors

OPEC output, supply and spare capacities

Increased demand from emerging and developing countries; geopolitics

US crude and products inventories data

Currency fluctuations

Weather conditions

Speculative buying and selling

Changes in the refining sector, for example, a drop in the refinery

utilization rate

Factors Influence the Crude Oil

There are many factors that influence the global crude oil prices
including technology to increase production.

Storage of crude oil by richer nations (one major indicator that is tracked
closely is the US crude oil inventory data), changes in tax policy,
political issues etc.

Production

A large part of the world's crude oil share is produced by OPEC

(Organization of Petroleum Exporting Countries) nations.

Any decisions made by OPEC countries to raise the prices or reduce

production, immediately impacts the prices of crude oil in the global
commodity markets.

Inventory

Oil producers and consumers build a storage capacity to store crude oil
for immediate future needs. They also build some inventories to
speculate on the price expectations and sale/arbitrage opportunities in
case of any unexpected changes in supply and demand equations. Any
change in these inventory levels triggers volatility in crude oil's prices
which in turn creates ripples in the stock markets.

Demand

The demand of crude oil is rising sharply due to high growth and
demand from the emerging economies. On the supply side, the major
sources of supplies are still the same as they were in the last decade.

Crude oil inventories have demonstrated a highly cyclical pattern in the

recent past. Usually, crude oil inventories increase in the summer
months and decrease in the winter months. This is because cold
temperatures in the winter increase the use of energy for heating in
many cold countries. The demand for fuel goes above supply and results
in a need to tap inventories.

Latest news on crude oil

U.S. crude settled below $44 for the first time since March on Friday,
pressured by tumbling gasoline prices as the approaching end of the
U.S. summer driving season suggested a growing surplus in fuel supply.

The U.S. benchmarkWest Texas Intermediate settled down 79 cents at

$43.87 a barrel, near a six-year closing low of $43.46 reached in March.

In Asian trade through the day, both contracts were up slightly, with WTI
rising 17 cents from USD 44.66 in New York and Brent gaining 21 cents
from USD 49.52.