FACTS ABOUT PRODUCTION

One barrel of crude oil is the equivalent of 42 U.S. gallons. After the barrel of oil is refined, it yields approximately 20 gallons of motor gasoline and seven gallons of diesel. With an additional 17 gallons of petroleum byproducts, such as propane, ammonia and plastic materials, the total refining process has a net gain of two gallons.
As mentioned, the types of crude oil are light/ heavy and sweet/ sour. Lighter, sweeter crude is in more demand globally, but is becoming increasingly difficult to access. This has caused many investors on Wall Street to question how much oil is actually being pumped from reserves versus how much oil is being used. Emerging economies in both China and India have added to this intense debate. In 2004, annual worldwide oil consumption was 30 billion barrels. This would not have been controversial, except that new discoveries during the same time had fallen to eight billion barrels. By 2005, worldwide demand for oil had reached 31 billion barrels, leaving worldwide emergency stockpiles nearly depleted for 37 days. While Saudi Arabia, Russia, and the U.S. are the top oil producing countries in the world, they are having more difficulty meeting demands. Currently, 62% of the world's accessible oil can be found in the Middle East, centered on five countries: Saudi Arabia, United Arab Emirates, Qatar, Iraq and Kuwait. The fact that a protracted war on terror in Iraq has halted production to a fraction of what it used to be is important to take into consideration. Also understand that Qatar shares a natural gas field with Iran, considered by the U.S. as part of the axis of evil, so two out of the five Middle East countries are not producing at full capacity. (When the price of oil goes up, don't worry about how much gas is going to cost; get even by making a play on the Canadian dollar. Find out how in Canada's Commodity Currency: Oil and the Loonier.)

FACTORS THAT INFLUENCE CRUDE OIL PRICES

·         For the past 50 years, the price of crude oil has been denominated in U.S. dollars. With the fluctuation in the value of the U.S. dollar and the prominence that newer currencies such as the euro are gaining, OPEC is considering switching crude oil from a U.S. dollar quotation system to either the euro or to a basket of multiple currencies. This could have an adverse affect on oil prices in the short run.

·         In 1956, geophysicist M. King Hubbert made the dire prediction that oil would reach a peak  production level, flatten out, and eventually decline - following a bell curve pattern of distribution. Eventually, the world would deplete all of the available oil. The peak, as calculated by Hubbert, was alleged to have been hit in 1970. Since then, peak oil predictions have been readjusted to account for current usage versus what is being pumped from the ground. (For more on this phenomenon, see Peak Oil: What to Do When the Wells Run Dry.)

·         Alternative methods of oil development are gaining prominence. Oil shale and tar sands are becoming viable oil producing sources. As the price of technology begins to decrease, these sources become more accessible to refiners. Methods for turning methane and coal into oil substitutes, first discovered in the 1930s and during WWII, are being explored again. All of these alternatives have the opportunity to upset crude oil prices.

·         Global warming is considered an unintended consequence of using petroleum-based products. This has led to an aggressive move to develop green energy sources such as electric cars, fuel cells, ethanol, liquid natural gas and others, in the hope that they can potentially reduce the world's reliance on crude oil. As these technologies become more common in the marketplace, they have the ability to displace crude oil.