Crude Oil Fundamental Analysis Is it important?

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Crude Oil Market Analysis:

What is Crude Oil Market Analysis? Fundamental Supply and Demand is KEY!

Why is Crude Oil Market Analysis important?  Have you ever wondered why crude oil is important?  It is just for cars and trucks right?   Hmmm, not quite…

Crude Oil contributes to the manufacturing of the device you are holding/using, phones, credit cards, eyeglasses, contacts, clothing, artificial hips, pacemakers, hearing aids, casts, and so much more….

Crude oil is a raw resource that is used to produce a range of products from fuel to plastics. Crude oil production and consumption are closely related, as the demand for crude oil products (such as gasoline and plastics) directly affect the demand for crude oil. The primary countries that produce crude oil are Saudi Arabia, United States, Russia, Kuwait, Iran, Iraq, China, Canada, and United Arab Emirates.

In this post we will analyze the recent changes in supply and demand for crude oil as well as looking at refining capacity and production capacity.  Crude Oil Market Analysis is YOUR secret weapon in understanding the value of crude oil in today’s markets.

To fully understand how interconnected the world is when it comes to supply chain on the Oil & Gas industry, you can begin your research here with a review of the impact of Russia’s war on Ukraine:  The Impact of Russia on World Crude Oil Supply & Demand

Crude Oil Supply:

Crude Oil Production and Supply is important in the U.S. and EVERYWHERE...

Crude oil production has been hovering around 100 MMBOPD since 2017 and decreased to around 95 MMBOPD in 2021, according to the U.S. Energy Information Administration (EIA).  Global Demand outpaced supply in 2021 to close to 97 MMBOPD with an expected increase to over 100 MMBOPD (pre-COVID levels) in 2022.

OPEC has been responsible for keeping world supply stable. Saudi Arabia exports roughly 8% of global demand which makes the country one of the most influential in the world. took on more responsibility to stabilize global supply due to increased demand from China and U.S. shale production growth.  The largest producers of crude oil in OPEC traditionally take a long term approach to their strategic valuation of crude oil.  Yet, in times of crisis, OPEC has historically balanced the supply/demand portfolio based on the ability to increase or decrease supply.

In Crude Oil Market Analysis, one thing that is critical to understanding crude oil supply is to understand crude oil quality – you can begin learning more with this article:  What is Crude Oil?  What is Condensate?

Crude Oil Demand:

Crude Oil Demand comes in the form of Gasoline, Jet Fuel, Diesel ...

Crude oil is a raw material that is used to produce a range of products from fuel to plastics. Crude oil production and consumption are closely related, as the demand for crude oil products directly affect the demand for crude oil. The primary producers of crude oil are Saudi Arabia, Russia, Kuwait, Iran, Iraq, and the United States.

The primary consumers of crude oil are China, the United States, Japan, and India. These countries account for 40% of global consumption; however China has been the fastest-growing consumer over recent years and will likely continue to be so in the future.

With regard to demand for petrol (gasoline), it continues to grow at a much slower pace than other liquids such as diesel and jet fuel. This is because cars become more efficient and able to use less petrol as time goes on.

Demand is so important that in 2020 during COVID concerns about demand actually pushed the price of Crude Oil to negative territory.  Crude Oil Market Analysis depends on a key understanding of Supply AND Demand!

Crude Oil Refining Capacity:

Refinery capacity can be "kind of a big deal..."

The refining capacity of crude oil is a key factor in determining the supply and demand for crude oil. The refining capacity is set by the number of barrels per day (bpd). The more bpd a country has, the more crude oil they can refine and convert into products.

Prior to 2019, the US has not built a NEW refinery since 1977.  While there have been multiple expansions and efficiency gains, the US complex is somewhat dated.  In 2019, Targa brought online a condensate splitter in Channelview and in 2020 a project was announced in the Bakken.  The US currently (as of May, 2022) refines approximately 90% of the 17.9 MMBOPD capacity in the US which translates to 15 to 15.5 MMBOPD.  A good point of reference is that the US currently produces 11.9 MMBOPD.  

Behind the US, Saudi Arabia currently has the highest refining capacity with 12 million bpd. However, it’s important to note that not all countries have this same ability to refine such high volumes of crude oil, as some countries such as Nigeria and Venezuela produce less than 1 million bpd.

Crude Oil Production Capacity:

Production and the future.

The capacity of the world’s crude oil production is continually increasing. In fact, the world oil production has increased over 30% since the turn of the century in 2000 to over 95 MMBOPD.

Increasing crude oil production capacity is a result of growing demand for crude oil products. A larger supply of these products also means that they are cheaper and more readily available.

In spite of the increase in supply, demand for these products is still on the rise as well. This means that with such a substantial increase in both supply and demand, the price of crude oil will continue to go up as time goes on.

Crude oil production is not limited by any specific geographic region – instead, there are many countries that produce this raw material which makes it difficult to regulate its supply and demand levels. Additionally, some countries may have more access to sources of crude oil than others which can lead to a surplus in certain regions and a shortage in others.

In addition to Crude Oil Market Analysis, another key element to understanding value and volume is understanding basis (or the value difference between the same item in different locations) – in the Oil & Gas industry this is SUPER important.  This article might help you understand a bit more about it:  What is Basis in the Oil and Gas Markets?


Crude Oil Supply & Demand IS IMPORTANT

What did we learn in 2020?

Well, for one thing crude oil prices can (and sometimes will) go negative.  The importance of supply AND demand are critical in understanding how prices and supply chain function.  We realized in 2020 through today, that the supply chain is a delicate balance of raw materials, manufacturing, transportation, and logistics.  Does anyone remember a toilet paper crisis?

Crude Oil Market Analysis depends on a critical understanding of Supply, Demand, Production Capacity, and Demand Capacity.

The supply and demand of crude oil is a very important part of the crude oil market.  Crude oil is integrated into so many products, logistics and transportation that supply of crude oil is integral to our delicately functioning economy.  Supply and demand are the two most important factors of the crude oil market.

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Rogue Edge is a comprehensive and robust dashboard for oil, natural gas, natural gas liquids, and refined products. The dashboard includes interactive and downloadable charts for fundamental analysis and technical analysis. Supply and demand for each commodity in the US and internationally is available as well as technical indicators to predict short term price direction. The Rogue Edge also provides Artificial Intelligence analysis to predict future supply and demand.

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