Products derived from crude oil are varied; the most well-known is gasoline (petrol), while other products include heating oil, liquefied petroleum gas (LPG), naphtha, kerosene, gas oil, and fuel oil. With so many applications for which there are few or no substitutes, crude oil is certainly the world’s most important commodity. The faster economies grow, the greater their consumption of oil. This is why demand from developing countries such as China and India has risen dramatically in recent years. The price of crude oil is also highly sensitive to political developments, especially unrest in the Middle East.

This tutorial outlines the main uses of crude oil and its derivative products, and describes how these are traded in the cash and derivatives markets

Objectives
On completion you should be able to:

• Describe the key features of crude oil and its by-products
• Explain the fundamentals of crude oil pricing, and identify the various elements that affect the prices
• List the participants in the oil market
• Describe the process of hedging and trading in the crude oil market