BT: ABCs of terms used in crude oil industry

Business Times - 29 Oct 2007

ABCs of terms used in crude oil industry

CHEN HUIFEN explains what they mean as crude oil movements affect one and all
CRUDE oil prices continue to stay strong last week, after breaching US$90 earlier this month. In the previous instalment of Young Investors' Forum, we discussed the basics of crude oil and why it has an influence over world economics. This week, we take a closer look at the terms used in the industry and what they actually mean.

Nymex

Nymex stands for the New York Mercantile Exchange. It is the world's largest energy futures market. Apart from crude oil and other energy products, the platform also offers other types of commodity futures, such as precious metals.

WTI

West Texas Intermediate is the name of the light crude oil grade. As it has a lower sulphur content, it is less expensive to refine into products. It is one of the most actively traded futures commodities on Nymex. Also, known as Texas light sweet. It is often used as a benchmark for crude oil prices

Brent

Brent crude oil refers to a blend derived from the North Sea. It is said to be ideal for the production of gasoline and middle distillates (such as kerosene and diesel). Like WTI, Brent is also often used as an international benchmark grade. Also considered a light crude oil, but not as light as WTI. It typically costs less than WTI, but this year saw its prices run past that of WTI due to declining inventories and a depleting pool in the North Sea oil fields.

Barrels

The denomination used to measure oil is barrels, and one unit of it is 42 US gallons. More than 800,000 barrels of oil imports pass through Singapore each day. Just to give an idea of the scale, crude oil imports in the US are about 10.1 million barrels per day, according to 2005 data.

Inventories

One of the key barometers of oil prices is the existing inventory levels. They give oil traders an idea of the demand and supply of stocks available over a period of time. Generally speaking, when oil stocks go up over time, it signals that production is exceeding demand. All else being equal, the trend could result in lower oil prices.

Energy Information Administration

A key source of crude inventory, the Energy Information Administration, or EIA, reports the official energy statistics from the US government. Information on energy production, and consumption, classified according to the energy type (petroleum, natural gas, coal, electricity, nuclear energy, renewable energy) is updated regularly on its website (http://www.eia.doe.gov/). It also posts weekly estimates on US oil supply.

US$

Prices in crude oil and energy products are quoted in US dollars, so the impact of price movements of oil have to take into account the exchange rate of the US dollar against the working currency of the buyer. If the greenback is weak, then the impact of a strong oil price trend may be buffered to a certain extent. However, a buyer would be hit on two accounts, if both the greenback and oil prices are rising at the same time.

Inflation

As explained in the article last week, crude oil is an important energy source in the world today. And its price movements can have a bearing on companies and many individuals' lives. They may fuel prices hikes in other products and services, such as transportation costs, electricity bills and business costs. As such, crude oil prices are not only keenly monitored by traders but also economists and politicians.