66 PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
light of total activities of the petroleum industry. This includes the
processes of exploration, extraction, and transportation (as well as
refining capacity, refining processes, and petroleum products such
as gasoline, which are covered elsewhere; Chapter 6). Each can have
an effect on crude oil prices. For example, higher prices can result in
increased exploration and production both in the OPEC (oil exporting) nations and in the non-OPEC (oil importing) nations.
On the supply side, the main effects on the crude oil market are
the OPEC nations, which currently provide approximately 40%
of the world supply and hold approximately 70% of the proven
reserves. OPEC, as the marginal supplier, behaves as a cartel by
aiming to maintain excess extraction capacity in order to influence
crude oil prices. In recent years, the policy has been to balance the
market while allowing for an appropriate level of crude oil inventories in non-OPEC nations that,have relatively limited reserves and
spare capacity.
Even before the economics of crude oil pricing is decided, there
are several aspects of petroleum technology that need to be taken
into account and all make a contribution to the price of oil. In fact,
crude oil prices behave much as any other commodity with wide
price swings but which may, or may not, be due to shortage or
oversupply. Indeed, the crude oil price cycle may extend over several months or even over several years responding to changes in
demand as well as supply.
Many economists are not aware of the make-up of the industry and, therefore, the means by which prices are set. On the other
hand, the technical person may be aware of the processes used to
discover and recover oil but may not be aware of the causes of price
swings in the crude oil market and cannot appreciate the whole
scenario of oil pricing.
This chapter is designed to afford a non-technical explanation of
the technical aspects of oil exploration and recovery and is intended
for the technical and non-technical person alike.
3.1 Exploration
Exploration provides information about future exploration prospects that can lead to revised expectations about the future value of
the resource and generate new expected time paths for the resource
light of total activities of the petroleum industry. This includes the
processes of exploration, extraction, and transportation (as well as
refining capacity, refining processes, and petroleum products such
as gasoline, which are covered elsewhere; Chapter 6). Each can have
an effect on crude oil prices. For example, higher prices can result in
increased exploration and production both in the OPEC (oil exporting) nations and in the non-OPEC (oil importing) nations.
On the supply side, the main effects on the crude oil market are
the OPEC nations, which currently provide approximately 40%
of the world supply and hold approximately 70% of the proven
reserves. OPEC, as the marginal supplier, behaves as a cartel by
aiming to maintain excess extraction capacity in order to influence
crude oil prices. In recent years, the policy has been to balance the
market while allowing for an appropriate level of crude oil inventories in non-OPEC nations that,have relatively limited reserves and
spare capacity.
Even before the economics of crude oil pricing is decided, there
are several aspects of petroleum technology that need to be taken
into account and all make a contribution to the price of oil. In fact,
crude oil prices behave much as any other commodity with wide
price swings but which may, or may not, be due to shortage or
oversupply. Indeed, the crude oil price cycle may extend over several months or even over several years responding to changes in
demand as well as supply.
Many economists are not aware of the make-up of the industry and, therefore, the means by which prices are set. On the other
hand, the technical person may be aware of the processes used to
discover and recover oil but may not be aware of the causes of price
swings in the crude oil market and cannot appreciate the whole
scenario of oil pricing.
This chapter is designed to afford a non-technical explanation of
the technical aspects of oil exploration and recovery and is intended
for the technical and non-technical person alike.
3.1 Exploration
Exploration provides information about future exploration prospects that can lead to revised expectations about the future value of
the resource and generate new expected time paths for the resource