Crude Oil
Oil was formed from the remains of plants and animals that existed millions of years ago. Natural processes utilizing heat and pressure transformed these organic leftovers into crude oil.
PRODUCTS MADE FROM CRUDE OIL
Most petroleum products are used to produce energy. For instance, many people across the United States use propane to heat their homes. Petroleum products are predominantly used for transportation fuels, such as gasoline and diesel.
After crude oil is removed from the ground, it is sent to a refinery by pipeline, ship, or barge. At a refinery, different parts of the crude oil are separated into useable petroleum products. Crude oil is measured in barrels (abbreviated “bbls”).
A 42-U.S. gallon barrel of crude oil provides slightly more than 44 gallons of petroleum products. One barrel of crude oil, when refined, produces about 19 gallons of finished motor gasoline, and 10 gallons of diesel, as well as other petroleum products.
Other products made from petroleum include:
- Ink
- Crayons
- Bubble gum
- Dishwashing liquids
- Deodorant
- Eyeglasses
- CDs and DVDs
- Tires
- Ammonia
- Heart valves
OIL PRODUCTION
The world’s top five crude oil-producing countries:
- Russia
- Saudi Arabia
- United States
- Iran
- China
Over 25% of the crude oil produced in the United States is produced offshore in the Gulf of Mexico. The top crude oil-producing States are:
- Texas
- Alaska
- California
- Louisiana
- North Dakota
IMPORTS & EXPORTS
Though the United States is one of the world’s top oil-producing countries, the nation still imports much of the crude oil and petroleum products it needs. About 53% of the crude oil and petroleum products used in the United States in 2009 came from other countries.
The U.S. consumed 19.5 million barrels per day of petroleum products during 2008, making it the world’s largest petroleum consumer. The United States was also third in crude oil production at 5 million barrels per day.
GROWTH OF U.S. DEMAND
U.S. crude oil imports grew rapidly from mid-20th century until the late 1970s, but fell sharply from 1979 to 1985 because of a fall-off of demand for petroleum products that resulted from economic conditions, conservation, and improved efficiency.
After 1985, the upward trend resumed and stood at 9.8 million barrels per day in 2008. Petroleum product imports were 3.1 million barrels per day in 2008. Exports totaled 1.8 million barrels per day in 2008, mainly in the form of distillate fuel oil, petroleum coke, and residual fuel oil.
SOURCES OF U.S. IMPORTS
About half of U.S. petroleum imports come from the Western Hemisphere. Only 18% of U.S. crude oil and petroleum products were imported from the Persian Gulf countries of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates.
In 2008, 46% of U.S. petroleum imports came from Organization of the Petroleum Exporting Countries (OPEC) countries, down from 70% in 1977. After 1992, more petroleum came into the United States from non-OPEC countries than from OPEC countries.
During 2008, the five biggest suppliers of crude oil and petroleum products to the U.S. were:
- Canada (19.3%)
- Saudi Arabia (11.8%)
- Mexico (10.1%)
- Venezuela (9.2%)
- Nigeria (7.7%)
OTHER U.S. IMPORTS
Although the United States produces more than 90% of the petroleum products it consumes, it imports about 3 million barrels per day of refined petroleum products, such as gasoline, diesel fuel and jet fuel. The U.S. also imports unfinished products used as refinery inputs and blending components.
U.S. EXPORTS OF OIL
Even though the U.S. is the world’s largest importer, it also exports almost 2 million barrels a day of oil – almost all of it in the form of refined petroleum products. Due to various logistical, regulatory, and quality considerations, sometimes exporting some barrels and replacing them with additional imports is the most economic way to meet the market’s needs.
For example, refiners in the U.S. Gulf Coast region frequently find that it makes economic sense to export some of their gasoline to Mexico rather than shipping the product to the U.S. East Coast because lower-cost gasoline imports are available from Europe.
USE OF OIL
Crude oil and other liquids produced from fossil fuels are refined into petroleum products that are used for many different purposes.
When petroleum products are burned to produce energy, they may be used to propel a vehicle, to heat a building, or to produce electric power in a generator. Over 2/3 of total U.S. petroleum consumption is for transportation, and almost 2/3 of transportation sector petroleum consumption is gasoline.
In addition, petroleum may be used as a raw material (a “feedstock”) to create products such as plastics, polyurethane, solvents, asphalt, and hundreds of other intermediate and end-user goods.
The U.S. consumes more energy from petroleum than from any other energy source. In 2008, total U.S. petroleum consumption was 19.5 million barrels per day, or 37% of all energy consumed.
MAIN PETROLEUM PRODUCTS USED
In 2007, gasoline consumption reached a record high of 9.3 million barrels a day (or 391 million gallons per day), before declining to about 9.0 million barrels per day in 2008. About 7% of the gasoline consumed in 2008 was actually ethanol mixed with gasoline.
Diesel fuel is used in the diesel engines of heavy construction equipment, trucks, buses, tractors, boats, trains, and some automobiles. It accounts for about 20% of total transportation fuel consumption and about 16% of total petroleum consumption.
Heating or fuel oil is used to heat homes and buildings, for industrial heating, and for producing electricity.
OTHER PRODUCTS USED
Liquefied petroleum gases (LP-gases or LPGs) are mixtures of propane, ethane, butane, and other gases that are produced at natural gas processing plants and oil refineries. LPG consumption in 2008 was 2.0 million barrels per day.
Propane, the major LPG consumed, is used in homes for space and water heating, clothes drying, cooking, and by farmers for heating greenhouses and livestock housing and drying crops. The chemical industry uses about 50% of all the propane consumed in the United States as a raw material for making plastics, nylon, and other materials. Propane is also being used as an alternative transportation fuel.
Jet fuel, like gasoline, is nearly all used for transportation. Jet fuel consumption in 2008 was 1.5 million barrels per day.
CONSUMPTION
Top 5 Gasoline-Consuming States, 2008:
- California
- Texas
- Florida
- New York
- Illinois
Worldwide consumption of petroleum was 85.4 million barrels per day in 2008. The three largest consuming countries were:
- United States (19.5 million barrels per day)
- China (7.9 million barrels per day)
- Japan (4.8 million barrels per day)
PROJECTED U.S. PETROLEUM CONSUMPTION
The U.S. Energy Information Administration projects that most petroleum-based and non-petroleum based liquid fuels — including those derived from fuels such as coal, biomass, and natural gas — will continue to be used for transportation over the next two decades.
FACTORS AFFECTING OIL PRICES
Crude oil prices are determined by worldwide supply and demand. Demand is increasing as the global economy grows. Growing economies require energy, and oil accounts for over 35% of the world’s total energy consumption.
One of the major factors on the supply side is the Organization of the Petroleum Exporting Countries (OPEC), which can have significant influence on prices by setting production limits on its members, who together produce more than 40% of the world’s crude oil. OPEC countries have essentially all of the world’s spare oil production capacity, and possess about two-thirds of the world’s estimated crude oil reserves.
WORLD CRUDE OIL PRICE SINCE 1970
Disruptions in supply caused by natural and political events can affect prices. When the difference between production capacity and demand is very small, even the possibility of a supply disruption can cause oil prices to increase.
Rapid and large oil price increases occurred in response to crude oil shortages caused by the Arab oil embargo in 1973, the Iranian revolution in 1979, the Iran/Iraq war in 1980, and the Persian Gulf conflict in 1990. Hurricanes in the Gulf of Mexico have also caused oil prices to spike.
SEASONAL CHANGES IN PRICE
Seasonal changes in demand can influence the supply/demand balance for oil, and thus the market price. Other things being equal, crude oil markets tend to be stronger in the fourth quarter of the year (the high-demand quarter on a global basis, where demand is boosted both by cold weather and by inventory building) and weaker in the late winter as global demand for oil falls with warmer weather.
LONG-TERM OUTLOOK FOR CRUDE OIL PRICES
Despite the recent economic downturn, growing demand for energy — particularly in China, India, and other developing countries — and efforts by many countries to limit access to oil resources in their territories that are relatively easy to develop is projected to lead to rising oil prices over the long term.
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Source: Energy Explained, Energy Information Administration, U.S. Department of Energy