The Oil Industry and the Factors that influence Oil Prices – Chapter 4: The Origin of Oil and its Composition

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This is chapter number 4 out of 10. Read the rest:

Read The Oil Industry and the Factors that influence Oil Prices – Chapter 1: History of the Oil Industry
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 2: Oil Prices Determinants
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 3: The Sentiment of the Market

Oil is produced under the ground by the decomposition of marine life. The remains of these sea biomass and those of land carried to the sea by rivers settled at the bottom of the sea and becomes enmeshed in the sand and mud at the bottom of the sea basins. These deposits later become “source rocks” that will generate the crude oil. In fact the word petroleum is derived from the Latin words “Petra” for rock and “Oleum” for oil. This process took place millions of years ago since life began on earth and is still going on.

As these sediments become thicker and sink to the bottom of the sea, additional layers pile up and compress those layers below it. When these layers get compressed by the enormous pressure, the temperature of these layers will increase by a few hundred degrees turning the mud and sand into sandstone and shale. The carbonate precipitates and the shells become limestone. The remains of this biomass changed into crude oil, gas or coal. Different compositions of biomass, pressure and heat will produce different mixes of oil, gas and coal.

After the petroleum is formed, it will begin to flow upward the Earth’s crust as it has a lighter density than the surrounding brine in the shale rocks. The oil and gas will continue rising through the pores of the sediment layers above it until it hits an impermeable layer of rock or shale thus forming a reservoir of oil. 

The Oil Industry and the Factors that influence Oil Prices - Chapter 4: The Origin of Oil and its Composition

The Oil Industry and the Factors that influence Oil Prices - Chapter 4: The Origin of Oil and its Composition

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Some petroleum however does not encounter any such impermeable layer and will flow right up to the earth surface or the sea bed. Such escaping oil usually forms bituminous lakes on the surface.

The chemical composition of petroleum primarily comprises of hydrocarbons though some will also contain sulfur compounds. These sulfur content ranges from 0.1 to 0.5 percent of the makeup of the petroleum.  Petroleum comprises of all three state of matter, solid, liquid and gas. The viscosity of it varies from light crude as thin as gasoline to as thick as bitumen.

The earth comprises of region with different geological makeup. As the earth’s crust shifts, some of these regions have more favorable conditions which are able to trap the crude oil flowing upwards from deep under the earth.  It is for this reason why petroleum are predominantly found and supplied by countries in the Middle East. 

Read The Oil Industry and the Factors that influence Oil Prices – Chapter 5: The Drilling & Production of Oil
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 6: Comprehending Price Fluctuations
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 7: The Supply of Crude Oil and Its Prices
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 8: The Components of Gasoline’s Retail Price
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 9: When Supply and Demand isn’t the answer
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 10: Conclusion

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About: FX Empire Analyst - Irit R

Mrs. Irit Rutenberg is FXEmpire.com Content and Analysis Team Manager, with a few years of experience in the field. The FXEmpire.com news desk members are all of an academic background in the finance field with practical and theoretical experience in trading.

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