A flick through five biggest myths of the oil & gas industry

Highlights

• Distributing crude oil and natural gas is highly complex and requires state-of-the-art technology.
• The price of benchmark West Texas Intermediate (WTI) Crude oil went to negative US$37.63/bbl in April 2020.
• Apart from petrol and diesel, crude oil is used to produce more than 3,000 different kinds of products.

The oil and gas industry is one of the most important industries that plays a vital role in fulfilling global energy demands. Crude oil and natural gas are the primary components of the global energy industry. Processes and systems involved in producing and distributing crude oil and natural gas are highly complex and require state-of-the-art technologies. The global Oil & Gas industry generates hundreds of billions of dollars in revenue every year.

Must Watch: Which Countries Are Still Buying Russian Crude Oil?

The ongoing geopolitical turmoil between the Western world and Russia over Ukraine’s invasion has brought this industry into the limelight as prices of crude oil and natural gas were the first things that shot up within a few hours of starting the war. O&G remained one of the most volatile sectors amid this chaos. Russia is one of the leading O&G suppliers in the world, whereas Western sanctions on its fossil fuel exports have created a global supply shortage and shot crude oil and natural gas prices to quite high levels.

With various episodes running parallel in the global oil and gas industry, there are lots of misconceptions that come into our mind. With this backdrop, let’s skim through five of the biggest myths about the oil and gas industry that even you may be getting wrong.

 Crude oil prices can’t dip below US$0/bbl

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If you think crude oil prices can go below US$0/bbl, you are wrong. Some unique situations can drive its prices even to negative territories. Prices of benchmark West Texas Intermediate (WTI) Crude oil future contracts went into the negative territory in April 2020 during the pandemic. While the demand slumped sharply, oil contracts found very few buyers while supply from Texas-based oil wells kept flowing, leaving minimal storage space for newer supplies.

Price of every crude oil benchmark is the same

There are different types of crude oil based on their density, viscosity and levels of impurities present in it. Crude oil properties are entirely dependent on the place of origin, quality of organic matter, pressure & temperature conditions of subsurface rocks, where the organic matter gets converted into crude oil.

It becomes easy for refiners to make diesel and gasoline from low-sulfur crude oil. Additionally, low-density crude oil is generally favorable to high-density oil. Prices of each crude oil benchmark depend on their quality and demand and supply.

Good Read: Crude oil logs volatile prices on Iran deal revival & ongoing supply disruptions

Crude oil can only produce petrol and diesel

Apart from petrol and diesel, crude oil is used to produce more than 3,000 different kinds of products. These products include lubricants, asphalt, cosmetics and waxes. Apart from this, crude oil is also used to make plastic products, including bottles, bags, skate wheels, computer peripherals, automobiles and stereos.

Crude oil will exhaust soon

Scientists and economists often claim that crude oil is limited and will exhaust soon. Some wells have been drained. However, there is still a lot of unextracted oil left which is difficult to extract or not economically viable to produce. Producers across the globe initially focused on easily accessible oil sources and with rising energy demand, prices and technological evolution, oil producers are now focusing to extract those oil sources which were impossible to extract earlier.

Eco-friendly sources will soon replace oil

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The world's overall energy demands are mostly dependent on oil. In fact, around three-fourths of the world's total energy demands rely on oil. Conversely, eco-friendly sources make up, including solar, wind and biofuels are mere energy suppliers despite huge support from government institutions for last three decades.

Additionally, numerous industries don't have any reasonable replacement for oil. Hence, the oil demand is not going to vanish soon.

Must Watch: As Russia-Ukraine War Intensifies, Commodities Also Soars

Bottom Line

Crude oil and natural gas are the most important components of the O&G industry. With the industry being in the limelight amid the ongoing chaos between Russia and Ukraine, there are lots of misconceptions that may come into the mind of investors and significantly lead them to take bad decisions.