What is Oil?
Crude oil is a naturally-occurring substance typically made up of a high percentage of hydrocarbons, organic compounds and small quantities of metal. Crude oil is found in shale, sandstone and carbonates and processes for extraction can vary according to the rock formation. Drilling and extraction is executed over a three-stage process. Primary extraction is the first part of the process, and aims to recover around 5-15% of the well’s total oil yield by capitalising on the natural ‘reservoir drive’ forcing the oil towards the base of the rig once drilling has begun. The secondary extraction process requires a mechanical intervention to draw a further 45-45% of the total oil housed in the well. Depending on the formation of the rock and viscosity of the oil inside, the secondary recovery stage can take the form of either pressurised liquid (or gas) injection or submersible pumps. The use of pumps are typically avoided where possible on account of the additional cost and mechanical issues involved in their operation. Finally, the tertiary extraction stage involves the application of heat and chemicals to help increase the liquidity of the oil so as to draw a final 5-15% from the well. It should be noted that these percentages pertain to 50-60% of the total of the well’s petroleum deposit.
How do you trade oil?
Crude oil is typically a highly liquid asset, informed particularly by global supply and demand cycles. You can trade oil by buying and selling commodity-based oil ETFs on a stock exchange.
Other commodities
There are four categories for traded commodities; energy, metals, livestock and agriculture. The energy commodity market includes (alongside crude oil) heating oil and gasoline. Ferrous and nonferrous/precious metals are traded on the global commodity exchanges, alongside livestock and agriculture, for example cocoa, butter, orange juice sugar, animals and animal products.
