World History- 2 More Books Fundamentals of Investing in Oil and Investing in Oil and Gase

7/25/2019 World History- 2 More Books Fundamentals of Investing in Oil and Investing in Oil and Gase

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Investing in Oil and Gas- the ABC's of Dpps (Direct Participation Program) By athy !eshelo"# $%&%# Printed in

the nited tates of America

*he story of oil and gas spans tho+sands of year and has a long and fascinating history *he development of oiland gas has evolved over time and its +ses have also e,panded# ecoming an integral part of today.s gloaleconomy *he +se of oil event+ally replaced coal as the "orld.s primary so+rce of ind+strial po"er in the early$%thcent+ry and still remains the critical f+el so+rce that po"ers ind+stry and transportation

/any are s+rprised to hear that ancient c+lt+res +sed cr+de oil as a s+stance for iding material and as asealant for "aterproofing vario+s s+rfaces 0ive tho+sand years ago# the +merians +sed asphalt to inlaymosaics in "alls and floors /esopotamians +sed it+men to line "ater canals# seal 1oints in "ooden oartsand to +ild roads# it "as +sed to preserve m+mmies *he Bile refers to pitch eing +sed for +ilding p+rposes

2cementing "alls3in Baylon Ancient Persian talets indicate the medicinal and lighting +ses of petrole+m inthe +pper levels of their society By &4%% BC# techni5+es for lighting consisted of a fire pan filled "ith oil madeof a certain volatility so that it "o+ld +rn slo"ly and not ca+se +ncontrollale flames or e,plosions Over time#

the "ic6 oil lamp replaced the fire pan +sing flammale oil similar to today.s 6erosene lanterns7

*he Chinese "ere the first to discover +ndergro+nd oil deposits in salt "ells# and they 5+ic6ly recognised theimportance and potential +se of oil and gas Aro+nd 4%% BC# ancient Chinese history descries "ells over &%%feet deep containing "ater and nat+ral gas along the *ietan order *he Chinese constr+cted e,tensiveamoo pipelines dra"ing from the "ells in order to transport oil and nat+ral gas# +sed for lighting By &4%% AD#the Chinese "ere e,ploring and digging "ells more than $#%%% feet deep

Incendiary "eapons at sea "ere +sed y the By8antines in the s+ppression of a revolt against the 9mperorAnastasi+s I in 4&: AD Aro+nd ;omans +sed flaming containers of oil as "eapons Incendiary or flaming "eaponshad een +sed in "arfare for cent+ries prior to the invention of ?Gree6 fire#@ incl+ding a n+mer of petrole+mand it+men-ased mi,t+res ho"ever# Gree6 fire "as diffic+lt to e,ting+ish and co+ld +rn on "ater# ma6ing it

a devastating invention ?Gree6 fire@ may have een a form of naphtha or another lo"-density li5+idhydrocaron# as petrole+m "as 6no"n to 9astern chemists long efore its +se ecame "idespread in the&%%s

*he >omans +sed oil s+rface deposits for +rning lamps Petrole+m "as 6no"n as burning water in 1apan inthe a8i in the thcent+ry# prod+cing chemicalss+ch as 6erosene

D+ring the mid &:thcent+ry in the city of Ba6+ in A8erai1an# inhaitants devised methods and collected from oilseeps in the s+rface By the mid &4%s# shallo" pits of ao+t &&4 feet "ere d+g at Ba6+ to facilitate thecollecting of oil# "hich "ere in essence primitive oil "ells In &;4%# >omania "as the site of 9+rope.s firstcommercial oil reservoir *his site "as ama1or so+rce of oil for 9+rope /ore than $%% years laters# Ploesti#

>omania ecame the site of the "orld.s first oil refinery *he earliest mention of American petrole+m occ+rs inir alter >aleigh.s acco+nt of the *rinidad Pitch Ea6e in &44 :< years later# the acco+nt a 0ranciscan#Foseph de la >oche d.Allion# ao+t the oil springs of e" Hor6 "as p+lished in agard.s Histoire du Canada.Oil sands "ere mined from &


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&4 Ben1amin illiman# a professor at Hale niversity# "as the first to fractionate petrole+m y distillation *hisdiscovery rapidly spread aro+nd the "orld# and the first >+ssian refinery in the mat+re oil fields at Ba6+ "as+ilt in &;& At that time Ba6+ prod+ced ao+t %K of the "orld.s oil

*he first American gas "ell "as drilled near 0redonia# H in &$ and the first oil "ell "as drilled in &4 inPennsylvania y 9d"in Dra6e *he modern oil and gas ind+stry "as orn in the later & thcent+ry As ColinCampell tells +s# the Ind+strial >evol+tion "as already in progress eing driven y the steam engine# f+elled

y coar B+t then in the &;%s# a German engineer fo+nd a "ay to insert the f+el directly into the cylinderinventing the Internal Com+stion 9ngine# "hich "as more efficient At first# it +sed en8ene distilled from coal#efore t+rning to petrole+m refined from cr+de oil *he first a+tomoile too6 to the road in &: and the firsttractor "as +sed in &%ocefeller in &oyal d+tch# and anglo-Persian "hich later ecame British Petorle+m*he ma1or companies "ere fo+nded as follo"sL tandard oil Company 2 fo+nded in &+ssia and theD+tch 9ast Indies !o"ever# d+ring the first decade of the $% thcent+ry# ma1or efforts "ere +nder"ay to e,ploreand develop oil prod+ction in the /iddle 9ast Oil e,ploration ean in Persia ("hat is no" Iran) follo"ed yt+r6ey in the late &:%s# the B+rgan oilfield "as discovered in +"ait A decade later# the Gha"ar oilfield "asdiscovered in a+di Araia# and it still remains the largest oil field ever discovered After II# 1oint Americanand a+di commercial oi enterprises "ere formed creating conglomerates# s+ch as Casco (California Araiantandard Oil company) and Calte, (California *e,as Oil Comopany) 9vent+ally# 9sso (9,,on) and /oil 1oined


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the tandard oil Company of California to form Aramco(Araian American Oil company) ithin the # earlyoil finds in e" Hor6 and Pennsylvania "ere o+tpaced y demand and led to ?oil ooms@ in California# *e,asand O6lahoma

e have no" e,perienced some @"orld oil shoc6s@ d+e to political and economic sit+ations *he first oil scho6occ+rred in &


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In most ma1or prod+cing co+ntries# the government o"ns the rights to develop the reso+rces In the m+chof the land is privately-o"ned and the decision to e,plore and prod+ce oil is et"een the land o"ners and theprod+cing company *hat is a ig difference from most of the "orld# and important for investors to +nderstand-investors in the have opport+nities that many others don.t "hen it comes to direct participation investmentprograms

An interesting comment "as made y the ?dean@ of oil analyst# Charles /a,"ell# on the Charlie >ose ho"#

F+ne &%th#$%% !e said something to the effect that he thin6 the large oil companies have no" ecome toolarge or c+mersome and they are slo"ly dying# "hile the yo+ng# middle si8e or smaller oil companies are thef+t+re 2 they are more moile# fle,ile and are generally entreprene+rs "ho can more deftly ad1+st to themar6ets ()

Fundamentals of Investing in Oil and asBy Chris *ermee

0or more than ;%%% years# cr+de oil has played and important role thro+gho+t the early stages of h+mane,istence In the cradle of civili8ation# man "itnessed nat+ral occ+rrences of cr+de oil flo"ing from the gro+ndand soon recogni8ed its potential for many +ses 0or e,ample# even the earliest trade ro+tes# incl+ding somethat still e,ist today as roads# +sed this prod+ct to help accommodate larger amo+nt of traffic

It "as not long efore his seemingly magical s+stance "as "eaponised !+mans soon realised that cr+de oil

co+ld impact a military advantage After the split et"een the 9ast and est >oman 9mpires# a "eapon 6no"nas Gree6 0ire started terrorising ship cre"s aro+nd the "orld Discovered y Assyrians in the < thcent+ry AD#this is so-called ?li5+id fire@ "as la+nched +pon enemy ships# "hich event+ally made them sin6 >ome.senemies gre" to fear this mighty "eapon Cre"s fo+nd themselves +nale to p+t o+t the fires it ca+sed It "assaid y s+rvivors that even the ocean floor +rned +nder its effects *he details of ho" to ma6e Gree6 0ireremained closely held secret# passed do"n from one 9mperor to the ne,t *he sheer terror inflicted y thisdevastating technology infl+enced s+ch modern "eapons as napalm and flamethro"ers

Despite these fascinating early +ses# the manner in "hich oil stepped into its modern role is one of the mostinspiring stories of o+r civilisation.s progress *his tale is foc+sed on 1+st a feee" men "ho lived ac6 in themid-&%%s the first am+el ier# "ho o"ned a Pennsylvania salt mine /r ier "as +nintentionally hitting oildeposits "hile his men "ere diggin for salt ier initially sa" no +se for this s+stance and disposed of it as fastas he co+ld as it fre5+ently r+ined his "or6er.s clothes Eater on# ho"ever# ier oserved local eneca Indian+sing this oily s+stance as tropical remedy for s6in Based on this oservation# he started to sell the oil as a

ne" medicinal prod+ct 6no"n as ?>oc6 Oil@ +nder his ne"ly formed >oc6 Oil company ier never made afort+ne "ith his medical oil# +t he gained recognition for trying In one of history.s many ironies# :% years later#in &oert Chesero+gh "o+ld res+me /r ier.s "or6 and prod+ce "hat is 6no"n today as =aseline

Aro+nd the same time# in &4# George Bissel oserved cr+de oil poll+ting the s+rface of a pond /r Bisselland his +siness partners soon noticed its +n+s+al +rning characteristics *hese men "ere the first to havethe idea of creating a heat and light so+rce that co+ld potentially replace "hale oil *his "as a fort+nate time fors+ch a discovery as a "hale oil "as the primary reso+rce for lighting hale "as clean +rning and gave arighter light than candles and f+els made y ees"a, and other animal fats tarting in the first half of thenineteenth cent+ry# mar6et prices for "hale oil "ere sharply increasing d+e to lac6 of s+pplies ca+sed yoverfishing

*o determine the commercial viaility of cr+de oil as a light so+rce# Bissell contacted Professor Ben1aminillman of Hale niversity for a second opinion illman.s o1ective "as to determine if cr+de oil co+ld yield a

more affordale prod+ct than "hale oil !e made a phenomenal discovery "hen the cr+de oil +nder"ent a "ell-6no"n process called distillation ith distillation# a li5+id mi,t+re is heated s+ch that certain componentsseparate from one another d+ring controlled evaporation *he separated vapors are later collected thro+ghcondensation One of the isolated s+stances left over from oil distillation "as 6erosene

Professors illman.s discover confirmed that cr+de oil had the potential to e commercially competitive "ith"hal oil# leading him to recommend that Bissell find larger 5+antities of this s+stance

It "asn.t long efore Bissell fo+nd o+t ao+t /r ier and his previo+s attempts to sell cr+de oil as medicinalroc6 oil /r ier had the e,perience and 6no"ledge necessary to e,tract the amo+nt of cr+de oil needed to


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economically prod+ce 6erosene *he se gentlemen soon got together and started the Pennsylvania >oc6 oilcompany# "hich "as the very first company solely dedicated to drilling for oil "ith the +se of salt miningderric6s no"ing that they "o+ld need large amo+nts of capital from investors to ma6e this "or6# they ro+ghton oard a man named 9d"in Dra6e

Dra6e is one of the more interesting characters in this story As the man in charge of drilling operations# he "asgiven the nic6name ?Colonel@ to convey professionalism to investors "ho "ere nervo+s ao+t participating in

something that had never een done efore Dra6e "as act+ally never in the military# nor did he havee,perience in drilling for salt# m+ch less oil# +t "as act+ally a railroad cond+ctor y trade

On A+g+st $


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litres (& gallon N: litres) # is different than "ine and "his6ey arrels# "hich are % gallons each *he t"ogallon difference "as an allotment for evaporation and loss d+ring its diffic+lt voyage to the refinery

Altho+gh reg+lations "ere event+ally p+t in place to standardise 5+antities# it soon ecame clear that astandard of 5+ality "as needed ot ever oil formation prod+ces the same 5+ality of oil Oil prod+ced from oneformation may e physically and chemically difference than that of a different formation# the 5+ality of oilro+ght to the refineries "ill impact res+lting finished prod+cts *he importance of this fact cannot e

+nderstated *his "ill e f+lly e,plained in refining chapter

*he process of ma6ing 6erosene yielded many yprod+cts "hich "ere considered "aste prod+cts at firs# +t"o+ld later give irth to ne" ind+stries One s+ch yprod+ct# no" called gasoline# "as too heavy# volatile# andca+sed too m+ch smo6e "hen +rned in a lamp *his made it +ns+itale for the f+nction of 6erosene and"hale oil Gasoline vapors have a tendency to e,plode +nder certain conditions "ithin closed spaces !o"ever#these volatile properties made it the most ideal candidate to po"er the ne"ly invented com+stion engine +sedy a+tomoiles

*he gasoline-po"ered internal com+stion engine "as perfected y German inventor i6ola+s A+g+st Otto in&;


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*he legacy of tandard Oil till echoes today /ost people elieve that the entire oil ind+stry is concentrated inhandf+l of companies In fact# there are tho+sands of small# local +siness dedicated to vario+s stages ofprod+ction# transportation and refinement across the nited tates

The First Mega-well

*he Pennsylvania cr+de oil oom spread across the nation and the "otld In &% Patilo !iggins hit o+r

co+ntry.s first mega-"ell# called pindletop# located so+th of Bea+mont# *e,as *he "ell "as so ig that oil1etted o+t into the s6y "hen it "as first tapped *his +nprecedented display "ent on for days efore it "asreined in +ntil this discover# a typical oil "ell prod+ced less than 4% arrels per day pindletop "as gamerchanger# prod+cing 4%#%%% arrels per day It single-handedly too6 over the s oil mar6et overnight

Along "ith the pindeltop "ell in *e,as# h+ge discoveries "ere eing made aro+nd the "orld In the &+ssia# near the Caspian ea In addition# a companycalled Anglo-D+tch# other"ise 6no"n as >oyal D+tch hell or simply hell# fo+nd oil deposits in modern dayIndonesia# near the island of +matra *his discovery ecame highly so+ght after y many nations in the 0ar9ast as the enefits of oil "ere 5+ic6ly ecoming realised Across the "orld# o+th America t+rned o+t to havelarge oil reserves as "ell In &%oyalavy# decided to replace coal-po"ered vessels "ith ships that ran on oil *his decision gave tremendeo+stactical advantage to "hat "as then the "orld.s naval s+perpo"er It so happens that many military andcommercial vessel contin+e to +se resid+al oil from cr+de as their primary f+el so+rce today

By the end of I# the "orld.s ma1or po"ers realised the strategic importance of reliale cr+de oil s+pplies Ina &$ speech# President Coolidge told the nation that # ?the s+premacy of nations may e determined y thepossession of availale petrole+m and its prod+cts@ *his "o+ld prove to e prophetic

WWII

By the &:%s# the orld.s ma1or oil s+pplies came from only a fe" concentrated so+rcesL the # the oviet-controlled Ca+cases-caspian ea region# the predominantly British controlled /iddle 9ast# and the D+tch 9astIndies Any oserver of history sho+ld 5+ic6ly notice that the +l6 of these gloal oil resro+ces "ereconsolidated "ithin the allied po"ers as the "ar progressed

*he Allied po"ers made s+re they "o+ld have sec+re access to their respective oil reserves# "hether domesticor colonial At the same time# the ma1or nations "hich formed the A,is alliance# Germany# Italy and Fapan#


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fo+nd themselves c+t off from any notale s+pply of cr+de oil "hich "o+ld e needed to restore their greatempires It didn.t ta6e long efore the attled lines "ere dra"n

Germany had t+ned to military aggression y the early &:%s in order to come o+t of the Great Depression Itsinvasion of 0rance "as made possile y the fearsome Pan8er tan6# "ith air s+pport provided y the E+ft"affe*he speed "ith "hich !itler.s a+dacio+s Blit86rieg strategy ravaged the 0rench co+ntryside "o+ld not haveeen possile "itho+t a contin+o+s# reliale s+pply of gasoline and diesel f+el

hortly after# emargoed y the nited tates from access to oil and other reso+rces from the D+tch 9astindies in & Fapan decided to la+nch a s+rprise attac6 against Pearl !aro+r "ith the hopes of crippling

America.s capacity to defend the "ell-estalished Indonesian oil s+pplies

Cr+de oil "as +sed y the machines of II in a "ide variety of "ays 0or e,ample# one c+rd eoil yprod+ct#called tol+ene# "as the primary component of ** Oil "as also needed to ma6e front-line r+n"ays andsynthetic r+er tires# to l+ricate heavy machines g+ns and e5+ipment and# of co+rse# as a f+el so+rce forevery type of military vehicle# from tr+c6s and tan6s to aircraft carriers and strategic omers

*hro+gho+t the co+rse of the "ar# ens+ring a s+pply of cr+de oil 2or denying one to the enemy 2"as the asisof many military actions on oth the eastern and "estern fronts *he defeat of the A,is po"ers is "idelyattri+ted to the follo"ing cla+sesL lac6 of availale cr+de oil reso+rces# incapacity to refine "hat cr+de oil theyco+ld otain into prod+cts li6e gasoline# and the inaility to deliver s+ch refined prod+cts to the tan6 and aircraft

on the frontlines General carl A paat8 of the Army Air 0orce s+mmarised the ca+se of Germany.simminent defeat in a historic telegram to his s+periors

?QEess than 4%% tons of aviation "ere made d+ring 0er+ary# &4# only % tons "ere made in /arch# none atall in AprilQ Germany.s large reserve of military aircraft stayed on the gro+nd "ith empty tan6sQ*an6s andarmo+red vehicles "ere moved to the front y o,enQ@

ostwar eriod! "et powered Expansion

After II# in the spirit of the ne"-fo+nd peace# collaoration et"een former enemies allo"ed for+nprecedented ne" scientific rea6thro+ghs# s+ch as 1et prop+lsion

0ran6 hittle of 9ngland and !ansvon Ohian of Germany independently invented the firs-generation 1et

engine *he German /9-$;$ fighter "as the first to s+ccessf+lly ta6e flight in &4 In peacetime# thistechnology "o+ld give irth to the commercial air transportation ind+stry that co+ld event+ally connect the

Americas "ith the rest of the "orld in a "ay that "as never efore seen

*he 1et engine "or6s y ta6ing cold air in thro+gh an inta6e at its front# compressing the air "ith ro"s oft+rines# mi,ing compressed air "ith ro"s of t+rines# mi,ing compressed air "ith f+el and igniting the f+el-airmi,t+re "ith an electrical spar6 "ithin a com+stion chamer *he ignited mi,t+re is then e,pelled thro+gh arear-facing no88le "hich creates thr+st and propels the engine# and the plane it.s attached to# for"ard

hile the 1et engine "as ring perfected# most Americans had long since replaced 6erosene lamps "ith theelectric +l as a primary home-lighting so+rce Altho+gh it "as possile for these early 1et engines to r+n onnearly any com+stile f+el# 6erosene "as chosen as an ideal candidate d+e to its increased a+ndance*here are many different types of 1et f+el +t# in general# it is made from 6erosene

no"ing ao+t the historically pivotal role cr+de oil played d+ring the $ Great ars is necessary to +ndertantthe ind+stry as it stand today *his trend "o+ld contin+e thro+gho+t the rest of the $%thcent+ry /any of thegloal conflicts "aged d+ring the second half of the cent+ry "ere related to oil ins ome "ay or another

Controlling Mar#et Fa$tors %Earl& industr&-resent'

By &%# Fohn d >oc6efeller.s company# tandard Oil# had ta6en over nearly all aspects of the oil mar6et *hecompany gre" so large# and "as so po"erf+l# that the 0ederal government has to intervene "ith an antitr+stla"s+it In && tandard Oil "as forced to split into : separate companies# amny of "hich are still 6no"ntoday


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Among the companies created y tandard Oil.s plit are the so-called ?/a1ors@ *he /a1ors have transformedsignificantly over time# mostly d+e to mergers and ac5+isitions At one point# they "ere 6no"n as the ?evenisters@ *he even isters "ere partic+larly dominant after the tandard Oil split# and incl+ded

tandard oil co of ne" 1ersey

tandard Oil Co of ne" Hor6

tandard Oil of California

*e,as Company

>oyal D+tch hell

Anglo-Persian oil company

G+lf Oil

*oday# after many years of mergers and ac5+isitions# these companies are no" 6no"n as ?*he ma1ors#@ oreven called ?the +perma1ors@ *hey areL 9,,onmoil# Chevron# >oyal D+tch hell# BP and total A 9vencomined# their dominance of the mar6et today is not nearly as strong as it "as d+ring >oc6efellers. time

*he rea6+p of standard oil created a mar6etplace "hich "as +ndesirale on many levels A company that "asonce operating comfortaly for ;% years "as s+ddenly forced# in effect# to compete "ith itself *he reg+lationsro+ght ao+t y this antitr+st action paved the "ay for rapid gloal e,pansion o longer allo"ed to coll+de or

conspire as one# the /a1ors effectively fled the

/any of these companies ended +p going overseas to find fe"er governmental and evnirnomental restrictions#res+lting in a massive increase in development restrictions# res+lting in a massive increase in development andcr+de oil prod+ction +rpl+s prod+ction (s+ppl+) soon e,ceeded gloal demand# ca+sing lo"er cr+de oil pricesand diminished profits for the ma1or oil companies At the same time# aro+nd &$# >+ssia "as recovering fromthe first y ringing large amo+nts of oil to the mar6et *he ma1or oil companies "ere competing "ith eachother in s+ch a "ay that they "ere canniali8ing themselves

Before long# the /a1ors realised this competitive ehavio+r "as +ns+stainale and that something needed toe done /any of their leaders met in cotland to disc+ss these iss+es# "hich led to the As-Is Agreement *heyagreed to maintain their &$ mar6et share levels in order to ens+re profit staility and to stop the self-cannialisation that res+lted from competition 0earing the antitr+st legislation that had split tandard Oil# theagreement only applied to activities o+tside the +nited tates

*he As-Is agreement "as the first coordinated gloal attempted to control the oil mar6et ot since the days of>oc6efeller had the mar6et seen s+ch over manip+lation and domination An yet et"een &&& and &:%#control of the gloal oil mar6et "as diffic+lt to maintain# despite all efforts to do so

*he participants of the As-Is agreement together made +p a large portion of the oil ind+stry at tis time# +t didnot conrol 5+ite eno+gh of the gloal oil mar6et to e,ert complete and thoro+gh dominance *his allo"edindependent operations to gain mar6et share 5+ic6ly y +nderc+tting prices elo" the As-Is participants. levelsIn addition# they had prolems "ith cheating and enforcement# "hich "ere contri+ting factors in its fail+re*his "ill e a familiar prolem to f+t+re control efforts in later years

In &: another mega-"ell "as discovered y Dad Foiner in 9astern te,as# *his "ell "as similar to gthegame-changing pindletop "ell discovered :% years earlier *he "ell "as so massive it 5+ic6ly helped the dominate the gloal mar6et y controlling the ma1ority of the "orld.s spare oil s+pply Aro+nd this time# prices

crashed nearly %K on the oil mar6et largely d+e to s+pl+s

*he crisis of 5+estionale control of the oil mar6ets from &&&-&:% "as occ+rring at a critical time in "orldhistory *he Great Depression in the &$%s and :%s "as crippling the economies of the and many othernations People "ere loo6ing to the 0edeal Government to solve society.s prolems In an effort to ring orderto the chaotic oil ind+stry# the *e,as >ailroad commission (*>C) and e5+ivalent government agencies in otherstates "ere as6ed to control prod+ction levels "ithin their 1+risdiction

hile not place directly in charge of the entire co+ntry.s oil prod+ction# the *>C had effective control over theind+stry eca+se *e,as "as the largest s"ing prod+cing state A s"ing prod+cer is one that is operating at a


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fraction of "hat is capale of If need e# it can increased or decreased its level of prod+ction to staili8e prices*o e5+ate this concept to today. mar6et a+di Araia is considered y many in the general p+lic to e the"orld.s primary s"ing prod+cer# altho+gh some have recently called this stat+s into 5+estion

As America cra"led its "ay o+t of the Great Depression# 1os and infrastr+ct+re programs "ere created to getthe co+ntry "or6ing again *he discovery that it+men# a cr+de oil yprod+ct# co+ld e mi,ed "ith gravel toform asphalt "as fo+nd to e +sef+l in the constr+ction of cheap road Before long# an interconnected high"ay

system "as +ilt# connecting cities and to"n together in a "ay that strengthened comm+nication and defense#and stim+lated economic gro"th

*he modern American "ay of life started to ta6e shape# largely po"ered y cr+de oil Instead of living in citiesand to"n "here all daily needs had to e "ithin "al6ing distance# the modern s++r ecame possile Peopleco+ld drive to "or6# the grocery store# or 1+st for the f+n of it Another innocation at this time from plentif+l oils+pplies "as the American m+scle car *he &4< Chevrolet Corvette# for e,ample# accelerated from %-;% milesper ho+se (mph) in 4< seconds# and co+ld reach speeds of +p to &:: mph 0+el company "as not a concern#this car only got ao+t && miles to the gallon on its est day

*his oom period of economic e,pansion "as e,perienced y those "ho still rememered the days of rationingfrom the Great depression and II eras Petrochemicals and plastic parts ecame increasingly pop+lar asreplacements for metal components ot only are plastics cheaper to prod+ce# they are also lighter in "eight#revol+tioni8ing nearly every ind+stry

ith all these ne" cons+mer and ind+strial applications# the oil ind+stry e,perienced +nprecedented s+ccess*he *e,as >ailroad commission had great infl+ence over oil mar6ets and the gloal economy d+e to itsa+thority over the apre oil prod+ction capacity of *e,as *his dominance the val+e ofany given +nit of oil

D+ring the *>C.s control of the oil mar6et# concession +s+ally dictated overseas prod+ction A concession "asa profit-sharing split (s+ally 4%-4%# ?min+s costs@) et"een an oil company and the co+ntry in "hich the oil "aslocated As s+ch # they "ere asic legal agreements et"een a co+ntry and a company or# in some cases# aconsorti+m of several companies prod+cing oil "ithin that co+ntry *hro+gh these concession agreements# theoil companies "ere ale to fi, the posted price of oil in a legally iding contract that had to e hono+red formany years# even decades in many cases

Despite these concession that prmised 4%K of the proceeds ac6 to the host co+ntry# they heavily favo+red theoil companies in a n+mer of different "ays Agreeing to a set p+rchase price for oil ahead of time# the oil

companies "ere ale to ?coo6 the oo6s@ y inc+rring e,tra costs s+ch as ro6er fees# transportation# evenrefining costs# therey red+cing the share of remaining profits give ac6 to a host co+ntry

Over a period of time# this perception of +nfairness inspeired many of these oil-rich co+ntries to form "hatecame 6no"n as the OP9C in &;% *he organisation.s fo+ndin co+ntries "ere iran# Ira5# =ene8+ela# a+di

Araia and +"ait# Based on the *>C model# OP9C controlled prod+ction y s+ing 5+otas to manip+lategloal oil prices o"adays# memer co+ntries have their prod+ction 5+otas set in relation to the oil reserves ofeach co+ntry At first# OP9C did not have m+ch infl+ence in the ind+stry It "asn.t +ntil the early &


11/11

Eondon# it soon ecame clear 1+st ho" m+ch profit the /a1ors "ere previo+sly ma6ing "ith their ?posted price@mechanism Once this discovery "as made# pricing "as thereafter derived from a ?as6et@ of finished goodsthat "o+ld e prod+ced from each +nit of oil in the f+t+re

*he oil mar6et is tr+ly a gloal activity In addition to e" Hor6 and Eondon# there are ma1or oil trading h+s inlos Angeles# the G+lf Coast# ingapore# D+ai# and the etheralnds Generally# these locations havephysical oil moving thro+gh their ports Price information ao+t physical oil at these locations is called ?spot

pricing# ? and is often comm+nicated to vario+s trade 1o+rnals# s+ch as Platts in the case of H/9J

*here are many factors "hich go into the pricing of oil# "hether on a real-time spot mar6et of a f+t+res contract*here are over &4% different lends eing traded at any given time aro+nd the "orld# adding at great deal ofcomple,ity to the oil mar6et *he t"o most "ell-6no"n lends are Brent orth ea and the est *e,asIntermediate (*I)# and are considered the enchmar6s for the IC9 and H/9J mar6ets# respectively *he*I lend# for e,ample# is 5+oted on the financial ne"s net"or6s as simply ?light s"eet cr+de@ eca+se of itslo" s+lph+r content and lo" density

Cr+de oil is li6e no other s+stance ever fo+nd# *he story of ho" it "as crept into o+r lives is +nprecedentedand fascinating to say the least o" that they ind+stry.s past has een e,plained# it ecomes possile toanalyse today.s mar6etplace along "ith possile f+t+re trends

Documents

World History- 2 More Books Fundamentals of Investing in Oil and Investing in Oil and Gase