Crude oil is oil that has not been refined. Crude oil occurs in the natural environment and is mainly extracted from hydrocarbon-rich fields. Crude oil is valuable because it can be refined to produce everyday products like gasoline, diesel, and countless other petrochemical products. Another reason it is considered valuable is because it is a non-renewable energy, it is this limited supply that makes it a finite resource.
Why is crude oil so valuable?
Before the Industrial Revolution, agricultural staples such as Corn and Wheat used to dominate commodity markets. Today, however, Crude Oil and its derivatives are the most actively traded commodity in the world.
That’s not surprising, considering that Oil has impacted practically every aspect of the global economy, even in the areas as close to life as consumer goods as well as manufacturing. And shipping.
If you think that Oil is mainly a fuel to power cars, trains, jets and ships, you are only seeing a small piece of the general picture of the uses of Oil. .
Specifically, Oil is the main ingredient in the production process
And many other items
Impacts on crude oil prices
Weather element
Like other commodities in the market, the seasonal demand for oil also greatly affects the price of crude oil (demand increases, decreases). For example, in the cold season, when it is necessary to consume a lot of gas, the price of gasoline will often increase because it cannot meet the high demand. In the dry season, gasoline may decrease if the amount of pepper is low, causing a backlog. However, coming Hurricane season in the US Gulf also has a big impact on oil prices, as the storms will pose a threat to refineries in the Gulf of Mexico.
USD
After being priced in USD, the factors affecting the USD also have an impact on the world oil market. It is easy to see that the price of crude oil is inversely proportional to the value of the dollar. Because, a strong dollar is when it only takes a few dong to buy a barrel of oil. This is a good sign for customers.
And conversely, when a barrel of oil costs about $100, it’s good for the producer. However, higher oil prices do not always bring high profits to producers.
Investment needs
Currently, before the fluctuations of the world economy, the need to find an investment channel to ensure finance is the top concern of investors. In fact, investors have no real need to use oil, but they have a relatively large influence on world oil prices. When the demand for investment in crude oil increases, it also unintentionally helps the liquidity of this market increase, and vice versa.
Market supply – demand
Crude oil is an essential commodity in modern life. The United States is the largest oil consumer and importer in the world, followed by Japan and China. Any impact that disrupts the supply of oil will have a direct impact on its price. Factors such as extreme weather, war, terrorism or political instability, and decisions by the Organization of the Petroleum Exporting Countries (OPEC) also have the potential to drive oil prices up or down. Since it is a non-renewable commodity, it is understandable that the price of oil has skyrocketed in recent years.
After participating in most production activities from petroleum, gas to consumer goods, fertilizers, cosmetics, the price of crude oil also increased significantly. From here, it can be seen that the demand for products refined from crude oil also affects the price of oil in the market. When demand increases, it will have a positive impact on oil prices, helping to bring high profits to producers and vice versa, when demand decreases, oil prices will also decrease.
Epidemic impact
At the time of the epidemic, the price of gasoline may drop a lot due to low consumption. In 2020, the crude oil market experienced an unprecedented crisis. The world oil price dropped sharply in the first quarter of 2020. 2020 is also the year of witnessing the “shock” of reducing oil consumption demand.
The Organization of the Petroleum Exporting Countries and its partners (OPEC+) had to cut production by a record 9.7 million barrels per day, equivalent to nearly 10% of global supply, in order to balance the market in the Escalation. loosening social distancing, bringing production and living activities back to normal in many countries, helping to increase gasoline demand; while the supply cut according to the agreement of OPEC + has helped the world petroleum market prosper and the Vietnamese petroleum market also prospered. The amount of oil inventories in the US decreased sharply, showing a strong increase in demand for petroleum products.
Should investors invest in crude oil?
Crude oil is one of the 35 commodities traded at the Commodity Exchange of Vietnam (MXV) and also the top product with the most trading volume in the world. Crude oil is one of the favorite trading commodities of longtime investors in Vietnam. So, what is the reason for the attractiveness of investing in crude oil?
Flexible investment items
Crude oil is a “very tradable” commodity, which means we can trade a number of specific oils if they are nearly identical for trading purposes, no matter where they are made. For example, a contract for 1,000 barrels of WTI crude has a similar role and regardless of whether they are produced in Texas or North Dakota.
Crude oil is a high value commodity
Crude oil is a type of oil that has just been extracted and has not gone through the refining stage, usually found in the natural environment and mainly exploited in hydrocarbon-rich fields.
Crude oil is very valuable as a fuel that can be used to produce everyday products such as gasoline, diesel and many other petrochemical products. In addition, crude oil is a non-renewable energy (we can only exploit it, but cannot create it), because with such a limited supply, it has contributed to making crude oil an important source of energy. limited resources. Crude oil is also known as “black gold”.
Benefits of crude oil
Wheat and corn were known to be staples in the agricultural era. But during the industrial revolution, crude oil was the most traded commodity in the world. This is not surprising because crude oil has been having a great impact on the Vietnamese economy in particular and the world economy in general, used in consumer goods, production and transportation.
Crude oil is used as a fuel for the transportation industry such as cars, ships, ……
In addition, it is also a key ingredient in the production of plastics, fertilizers, computers, cosmetics, steel and many other items.
Classification of crude oil
Today, oil is extracted from many different fields, they are distributed in very different places in terms of natural geographical characteristics. Therefore, each type of crude oil in each field has certain differences.
Crude oil has many types and each type will have different viscosity and sulfur content because it is exploited in different regions. Including:
WTI (West Texas Intermediate): is a light sweet crude oil, gravity on the 40 scale of API (American Petroleum Institute), low sulfur content.
Brent Crude: is a light sweet crude from the North Sea region, similar in gravity to WTI, slightly higher sulfur content. From a crude oil investment perspective, the quality of Brent is similar to WTI. In addition, there are several other types of crude oil.
What you need to know about the crude oil market
The world’s crude oil consumption is 95 million barrels per day. The world’s population is growing rapidly, the time to add 1 billion people is getting shorter and shorter, and the average world population is increasing by nearly 80 million people every year. It is expected that by 2025, the world’s population will reach 8 billion people, so the demand for consumption, production and transportation will increase, leading to an increase in the demand for crude oil as fuel.
Especially for developing countries, the demand for energy will be greater as these countries are focusing their growth in the trucking, petrochemical and aviation industries. And developed countries have also expanded their investment in manufacturing equipment and machinery in developing countries such as Korea, Japan, China, etc. have also opened production factories in Vietnam to increase production. energy consumption needs.
Russia, Saudi Arabia, USA, Iraq, Iran, China, Canada, United Arab Emirates, Kuwait and Brazil are the top 10 largest crude oil producing countries globally. Despite being one of the largest crude oil suppliers in the world, the US is also one of the largest crude oil consumers with nearly 8 million barrels imported per day. Besides the US, the amount of crude oil consumed depends on countries into developing countries such as China and India.
Oil source in Vietnam
Vietnam has an oil source with reserves of about 4.4 billion barrels, ranked 28th among countries with large oil reserves in the world. Since 1986, the first crude oil has been exploited at Bach Ho field. April 1987 Vietnam started exporting crude oil.
Currently, Vietnam ranks 4th in Southeast Asia in terms of oil exports. Vietnam is likely to maintain production at around 340,000 bpd in the next few years.
The Power of Crude Oil
Petroleum is a strategic commodity, the world petroleum market is influenced by economic and political factors of countries such as the US-China trade war, trade tensions between major economies. , such as: USA with EU and Canada; geopolitical tensions in the Middle East… In Vietnam, After many years of continuous export, from 2018 to now, Vietnam’s crude oil export output is on a strong downward trend while import volume is increasing many times, the main cause of the sudden increase in crude oil imports is because at the end of 2018, Nghi Son Refinery and Petrochemical Plant – a national key project, came into operation (importing crude oil) crude oil in 2018 increased by 337.6% in volume and 475.8% in value).
In summary, crude oil is a group of high-class commodities that bring huge profit value to many investors. However, the risk ratio offers more than other investment goods. Therefore, investors need to consider capital sources, knowledge and understanding of risk management regulations to ensure the safety of their investment campaigns. In addition, investors need to choose a business member with experience, good service quality, to accompany investors in the journey of effective, safe and sustainable trading.
