Today, crude oil is the most popular traded commodity in the energy sector. The price of oil goes up and down – mostly up during the last 10 years.
Crude oil is the raw material that products like petrol, fuel oil, gas oil, and liquefied petroleum gas are made of. It is believed that the first crude oil extraction operations date from the 4th century, although it was only during the 1950s that the crude oil industry became a major player in the global economy.
Understanding the crude oil trading market
Crude oil futures contracts were first traded in 1983 at the stock markets in New York and Chicago. Today, crude oil is traded at the New York Mercantile Exchange, the Tokyo Commodity Exchange, the Dubai Mercantile Exchange, the Indian Commodities and Derivatives Exchange, and the Intercontinental Exchange. Crude oil futures contracts are traded throughout the year.
There are three main types of crude oil: light, heavy, and sour. All three types need to be refined and yield different volumes of fuel. Light crude oil commands higher prices than heavy or sour crude since it produces a larger amount of refined oil products.
Since most economies rely on crude oil-derived products as a source of energy, the prices of crude oil in the international market are extremely sensitive to political turmoil, natural disasters, and the stability of the dollar. Prices also vary depending on the benchmark or variety being traded, with Brent and Dubai benchmarks typically commanding higher prices than blends like West Texas Intermediate, Bonny Light, or Isthmus.
Russia and Saudi Arabia are the world’s largest producers of crude oil.
The future of crude oil as a commodity
Since 2010, situations like the political instability of the Arab world, the Japan earthquake, the prolonged financial crisis, and an increase in global demand have caused a spike in the prices of crude oil. The depletion of existing stockpiles is also a cause of concern and has a direct impact on prices.
Expert predictions seem to indicate that the rise in crude oil prices will continue to take effect until 2015. After this point, it is expected that the dependence on crude oil as the major source of energy will diminish, and alternative types of fuel will enter the market.
As long as Americans pursue their love affair with the car and teenagers everywhere forget to turn off their computers, there will be a huge demand for fuel to propel them.
Read more about some of the other most traded commodities.