The Mumbo-Jumbo of the Oil Markets

There is something awfully similar between black crude oil and black magic; both are equally incomprehensible to the uninitiated and only insiders understand how it really works.

How and why a magician is able to pull off the stunts he does can only be understood by those in the loop, though the public at large can benefit from the magic, or at times suffer the consequences of the magic, as the case may be. The magician utters "magical words" to help achieve his tricks. Abracadabra, hocus pocus and the such. Words that mean nothing to those who do not really understand the ins and outs of the trade.

The same can be said about the oil industry.

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Here is a good example: headlines at several newspapers and Internet web sites reported on Tuesday that the price of oil jumped more than $2 a barrel, hitting a four-week high, as an oil pipeline linking Cushing, Oklahoma, to the Gulf Coast is expected to come on-line.

Would one not expect the exact opposite to be the case? A pipeline means quicker delivery of oil from production point to refineries via an uninterrupted means of delivery. Once in the pipeline the oil is expected to flow to its destination point, faster than it would have if it were being delivered along more conventional means such as trucks, tankers or other modes of transportation. Should it not therefor be the opposite? Should the price of oil per barrel not come down instead of be raised?
That is what the uninitiated to the intricate world of the oil markets would think. But that would be far too simple.  Well as it turns out that, (like magic), there is a trick to that and then again, just like in any trick, there is also a logical answer.

With the pipeline in operation the capacity to deliver becomes greater and the reserves of oil at the departure point become depleted much faster.

The men and women who deal in the oil industry also have their dedicated list of words and phrases that mean absolutely nothing to the ordinary person. Words like sweet crude, seating nipple or stress induced anisotropy.

Sweet crude is simply crude oil containing low levels of sulfur compounds, especially hydrogen sulfide. The facilities and equipment to handle sweet crude are significantly simpler than those required for other potentially corrosive types of crude oil.

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A seating nipple is a completion component fabricated as a short section of heavy wall tubular with a machined internal surface that provides a seal area and a locking profile. Landing nipples are included in most completions at predetermined intervals to enable the installation of flow-control devices, such as plugs and chokes. There are, according to the Schlumberger Oil Field Glossary, three basic types of landing nipples: no-go nipples, selective-landing nipples and ported or safety-valve nipples.

Or yet, a stress induced anisotropy, again described Schlumberger as a situation in which the formation shear-wave velocity azimuthally around the borehole, because unequal stresses in the formation have caused azimuthal variations in the stress concentrations around the borehole. These stress concentrations change the shear-wave speeds in the region surrounding the well from those in the far field, such that a characteristic response is observed in the dispersion of the dipole flexural mode…

As I was saying.., abracadabra and the rest.  For the consumer at the end of the day the only real good magic relating to the oil markets would be news that the price of oil is going down… now in order for that to occur this would require real magic.

By. Claude Salhani

Claude Salhani is a political analyst and senior editor at Trend News Agency in Baku, Azerbaijan.