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These excerpts taken from the USO 10-K filed Mar 17, 2008. What
is the Crude Oil Market and the
Petroleum-Based Fuel Market?
USOF
may
purchase Oil Futures Contracts traded on the NYMEX that are based on light,
sweet crude oil. It may also purchase contracts on other exchanges, including
the ICE Futures and the Singapore Exchange. The contracts provide for delivery
of several grades of domestic and internationally traded foreign crudes,
and,
among other things, serves the diverse needs of the physical market.
Light,
Sweet Crude Oil.
Light, sweet crudes are preferred by refiners because of their low
sulfur
content and relatively high yields of high-value products such as gasoline,
diesel fuel, heating oil, and jet fuel. The price of light, sweet crude oil
has historically exhibited periods of significant volatility.
Demand
for petroleum products by consumers, as well as agricultural, manufacturing
and
transportation industries, determines demand for crude oil by refiners.
Since
the precursors of product demand are linked to economic activity, crude
oil
demand will tend to reflect economic conditions. However, other factors
such as
weather also influence product and crude oil demand.
Crude
oil
supply is determined by both economic and political factors. Oil prices
(along
with drilling costs, availability of attractive prospects for drilling,
taxes
and technology, among other factors) determine exploration and development
spending, which influence output capacity with a lag. In the short run,
production decisions by the Organization of Petroleum Exporting Countries
("OPEC") also affect supply and prices. Oil export embargoes and the current
conflict in Iraq represent other routes through which political developments
move the market. It is not possible to predict the aggregate effect of
all or
any combination of these factors.
In
Europe, Brent crude oil is the standard for futures contracts traded on
the ICE
Futures, an electronic marketplace for energy trading and price discovery.
Brent
crude oil is the price reference for two-thirds of the world’s traded
oil.
10
Heating
Oil. Heating oil,
also known as No. 2 fuel oil, accounts for 25% of the yield of a barrel
of crude
oil, the second largest “cut” from oil after gasoline. The heating oil futures
contract, listed and traded on the NYMEX, trades in units of 42,000 gallons
(1,000 barrels) and is based on delivery in the New York harbor, the principal
cash market center. The price of heating oil has historically been
volatile.
Gasoline.
Gasoline
is the
largest single volume refined product sold in the U.S. and accounts for
almost
half of national oil consumption. The gasoline futures contract, listed
and
traded on the NYMEX, trades in units of 42,000 gallons (1,000 barrels)
and is
based on delivery at petroleum products terminals in the New York harbor,
the
major East Coast trading center for imports and domestic shipments from
refineries in the New York harbor area or from the Gulf Coast refining
centers.
The price of gasoline has historically been volatile.
Natural
Gas. Natural gas
accounts for almost a quarter of U.S. energy consumption. The natural gas
futures contract, listed and traded on the NYMEX, trades in units of 10,000
million British thermal units (mmBtu) and is based on delivery at the Henry
Hub in Louisiana, the nexus of 16 intra- and interstate natural gas pipeline
systems that draw supplies from the region’s prolific gas deposits. The
pipelines serve markets throughout the U.S. East Coast, the Gulf Coast,
the
Midwest, and up to the Canadian border. The price of natural gas has
historically been volatile.
What is the Crude Oil Market and the Petroleum-Based Fuel Market? USOF may purchase Oil Futures Contracts traded on the NYMEX that are based on light, sweet crude oil. It may also purchase contracts on other exchanges, including the ICE Futures and the Singapore Exchange. The contracts provide for delivery of several grades of domestic and internationally traded foreign crudes, and, among other things, serves the diverse needs of the physical market. Light, Sweet Crude Oil. Light, sweet crudes are preferred by refiners because of their low sulfur content and relatively high yields of high-value products such as gasoline, diesel fuel, heating oil, and jet fuel. The price of light, sweet crude oil has historically exhibited periods of significant volatility. Demand for petroleum products by consumers, as well as agricultural, manufacturing and transportation industries, determines demand for crude oil by refiners. Since the precursors of product demand are linked to economic activity, crude oil demand will tend to reflect economic conditions. However, other factors such as weather also influence product and crude oil demand. Crude oil supply is determined by both economic and political factors. Oil prices (along with drilling costs, availability of attractive prospects for drilling, taxes and technology, among other factors) determine exploration and development spending, which influence output capacity with a lag. In the short run, production decisions by the Organization of Petroleum Exporting Countries ("OPEC") also affect supply and prices. Oil export embargoes and the current conflict in Iraq represent other routes through which political developments move the market. It is not possible to predict the aggregate effect of all or any combination of these factors. In Europe, Brent crude oil is the standard for futures contracts traded on the ICE Futures, an electronic marketplace for energy trading and price discovery. Brent crude oil is the price reference for two-thirds of the world’s traded oil. 10 Heating Oil. Heating oil, also known as No. 2 fuel oil, accounts for 25% of the yield of a barrel of crude oil, the second largest “cut” from oil after gasoline. The heating oil futures contract, listed and traded on the NYMEX, trades in units of 42,000 gallons (1,000 barrels) and is based on delivery in the New York harbor, the principal cash market center. The price of heating oil has historically been volatile. Gasoline. Gasoline is the largest single volume refined product sold in the U.S. and accounts for almost half of national oil consumption. The gasoline futures contract, listed and traded on the NYMEX, trades in units of 42,000 gallons (1,000 barrels) and is based on delivery at petroleum products terminals in the New York harbor, the major East Coast trading center for imports and domestic shipments from refineries in the New York harbor area or from the Gulf Coast refining centers. The price of gasoline has historically been volatile. Natural Gas. Natural gas accounts for almost a quarter of U.S. energy consumption. The natural gas futures contract, listed and traded on the NYMEX, trades in units of 10,000 million British thermal units (mmBtu) and is based on delivery at the Henry Hub in Louisiana, the nexus of 16 intra- and interstate natural gas pipeline systems that draw supplies from the region’s prolific gas deposits. The pipelines serve markets throughout the U.S. East Coast, the Gulf Coast, the Midwest, and up to the Canadian border. The price of natural gas has historically been volatile. | EXCERPTS ON THIS PAGE:
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