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Commodity Trading: Crude Oil Futures

Demand / Consumption Considerations

Crude Oil is the raw material for all petroleum products, ranging from gasoline to lubricants. A typical 42 gallon barrel of Crude Oil is broken down into the following components: 19.5 gallons is used to produce gasoline, 9.2 gallons are used to produce distillate fuels (such as Heating Oil), 4.1 gallons goes for the production of kerosene jet fuel, and 2.3 gallons is used in the production of residual fuels. The remainder is primarily for chemical production and lubricants.

What a Barrel of Crude Oil Makes

Product	Gallons per Barrel
Gasoline	*19.5*
Distillate Fuel Oil (includes both home heating oil & diesel)	*9.2*
Kerosene-type Jet Fuel	*4.1*
Residual Fuel Oil (heavy oils used as fuels in industry, marine transport and electric power generation)	*2.3*
Liquefied Refinery Gases	*1.9*
Still Gas	*1.9*
Coke	*1.8*
Asphalt and Road Oil	*1.3*
Petrochemical Feedstock	*1.2*
Lubricants	*0.5*
Kerosene	*0.2*
Other	*0.3*
Figures are based on 1995 average yields for US refineries. One barrel of oil contains 42 gallons. Excess due to "processing gain"

As can be clearly seen from the above break down of a typical barrel of oil, the bulk of the Crude Oil produced is used in the production of gasoline. As such, the major demand for Crude Oil is for gasoline. Several macro economic elements affect the demand for Crude Oil and gasoline, such as income levels, economic growth levels, populations, and consumer habits. The strongest period for demand for Unleaded Gasoline is during the summer driving season, which is said to begin on Memorial Day and end on Labor Day. With demand running high for Unleaded during this period, refineries try to optimize their refinery mixes to maximize Gasoline production. Given that demand peak during the summer, refineries typically retool their plants in March or April to change to a mix more heavily weighted on Unleaded. This shutdown will create a tight supply situation since inventories are then worked off causing Crude Oil prices to rally.

Distillate fuels are the second largest by -product of Crude Oil refinement. These are heavy fuels, like Heating Oil and Diesel. The largest demand for distillate fuels comes from residential heating, which is why this category is typically referred to as Heating Oil. Since the demand is tied to temperature, with demand increasing as the temperatures drop, refineries try to optimize their mix to favor distillates during the fall and winter. Again, this tends to create a hole in supply, as stocks are used during the shut-downs, and prices tend to rally.

Because the demand for Crude Oil is directly tied to the demand for its products, Crude Oil has two demand peaks each year, coinciding with the demand peaks of its two main products: Unleaded Gasoline and Heating Oil.

SPONSORED BY:

Commodity Trader's Almanac 2008
Scott W. Barrie
Best Price $26.37
or Buy New $26.37

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SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS. THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

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