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YKOFX | Crude Oil

Petroleum or crude oil, is a naturally occurring flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, which are found in geologic formations beneath the Earth's surface. A fossil fuel, it is formed when large quantities of dead organisms, usually zooplankton and algae, are buried underneath sedimentary rock and undergo intense heat and pressure.



Oil extraction is simply the removal of oil from the reservoir (oil pool). Oil is often recovered as a water-in-oil emulsion, and specialty chemicals called demulsifiers are used to separate the oil from water. Oil extraction is costly and sometimes environmentally damaging, although Dr. John Hunt of the Woods Hole Oceanographic Institution pointed out in a 1981 paper that over 70% of the reserves in the world are associated with visible macroseepages, and many oil fields are found due to natural seeps. Offshore exploration and extraction of oil disturbs the surrounding marine environment.

After the collapse of the OPEC-administered pricing system in 1985, and a short lived experiment with netback pricing, oil-exporting countries adopted a market-linked pricing mechanism. First adopted by PEMEX in 1986, market-linked pricing was widely accepted, and by 1988 became and still is the main method for pricing crude oil in international trade.

The current reference, or pricing markers, are Brent, WTI, and Dubai/Oman.


North Sea Brent crude oil spot prices averaged $69 per barrel (b) in January 2018, an increase of $5/b from the December 2017 level. Monthly average Brent prices have increased for seven consecutive months, and, on January 11, spot prices moved higher than $70/b for the first time since December 2014. EIA forecasts Brent spot prices will average about $62/b in both 2018 and 2019 compared with an average of $54/b in 2017.