Crude Oil: The Backbone of Modern Energy

Crude oil is a natural liquid made mostly of hydrocarbons, which are combinations of hydrogen and carbon atoms. It's found deep underground in rocks that formed over millions of years. Crude oil often comes mixed with other substances like natural gas, saltwater, and sulfur, which are removed after the oil is extracted.

Figure 1: Oil & Gas Sources

The Global Nature of Crude Oil

Crude oil is a global commodity because it's relatively cheap to transport by tanker. However, local issues like pipeline problems can still affect its price. Oil prices are based on quality standards and change depending on global supply and demand. OPEC used to have a big impact on oil prices, but their influence has decreased as more oil is produced outside of OPEC, especially in the U.S.

In contrast, natural gas is priced more regionally because it's more expensive to transport over long distances since it must be converted to liquid form for shipping.

Gravity and Quality: Measuring Crude Oil

Crude oil is classified by its density, measured on the API gravity scale. Higher gravity means the oil is lighter and usually of better quality, making it easier to refine into products like gasoline and diesel. Lighter crude oils generally sell for a higher price.

Another important factor is sulfur content. Oil with less sulfur is called "sweet" and is more valuable because it's easier to refine. Oil with more sulfur is called "sour" and is less desirable, often selling for a lower price.

Figure 2: American Petroleum Institute (API) Gravity

Types of Crude Oil

• Light Oil: Flows easily through wells and pipelines and can be refined into a lot of transportation fuels. Light, sweet crude oil, like West Texas Intermediate (WTI), usually sells for a high price.

• Heavy Oil: Thicker and richer in carbon, heavy oil needs extra pumping to move through wells and pipelines. It produces fewer valuable products and is harder to extract and refine, leading to lower market prices compared to light oil.

• Tight Oil: Found in rock formations like shale, tight oil requires hydraulic fracturing to extract. It includes:

  • Shale Oil: Found in the original shale rock, with poor reservoir quality.

  • Tight Sand Oil: Located in nearby rocks like sandstone, with slightly better quality than shale.

• Bitumen: A thick, semi-solid hydrocarbon mostly found in Canadian oil sands. It needs to be blended with other substances to move through pipelines.

• Synthetic Crude: Made by upgrading heavy oil or bitumen into a lighter, sweet crude oil. It usually sells for a higher price than most other crude oils.

• Condensate: A low-density liquid found in raw natural gas. It's often used in Canada to help transport bitumen in oil sands operations.

Crude Oil Sources and Production

Crude oil is produced using different methods from various sources, like traditional onshore oilfields, deepwater basins, and Canadian oil sands. The difference between conventional and unconventional oil production isn't always clear, but typically, conventional oil excludes oil from sources like coal, shale, and bitumen.

As traditional oil sources decline, there's a growing focus on unconventional sources like shale oil, deepwater oil, and oil sands. These are more costly to develop but are becoming more important as conventional oil becomes harder to find and extract.

Uses of Crude Oil

Crude oil is a key source of energy and materials for many everyday products. It's refined into things like gasoline, diesel, lubricants, heating fuels, plastics, clothing, cosmetics, and even electricity. Its versatility and global importance make crude oil a foundation of modern life, powering economies and supporting daily activities worldwide.

Figure 3: Density & Sulfur Content

Benchmark Crude Oils: OPEC, WTI, and Brent

There are three main types of oil used as benchmarks: WTI, Brent, and OPEC.

• WTI (West Texas Intermediate) is oil from the U.S. It’s lighter (39.6 API Gravity) and has less sulfur (0.24%), making it "sweeter."

• Brent oil comes from the North Sea near Scotland. It’s also light (38.3 API Gravity) and sweet (0.37%), similar to WTI.

• OPEC oil refers to oil from a group of countries, including Saudi Arabia and Venezuela. This oil is usually heavier and has more sulfur, making it "sour."

  
  

Generally, lighter and sweeter oils, like WTI and Brent, are more expensive.

(Source: National Energy Board (NEB), Kimray, U.S. Energy Information Administration)