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Introduction
Oil is the single most important commodity that holds the position of a key factor in each and every economy of the world. The worlds richest nations are at their current positions just because of the oil factor. The importance of oil has reached such a level at which there is no country in the world, which doesnt need oil and its by-products, and if somehow it doesnt have much reserves of oil to meet their domestic demand, these nations are ready to import the product at any cost. Many nations have a huge share of their earnings constituted by oil exports only. Every industry requires oil to function properly either directly or indirectly as both crude oil and its by-products serve as their inputs. The extent of the commoditys importance was shown to the world when the worlds most strong economies were shaken up as the oil prices shot up in 1973 and 1979 when the gulf countries refused to supply oil to the countries that were the supporters of Israel in its war with Egypt and Syria. Crude oil alone bears 60% share to meet the global energy needs in the current scenario. The reason for this high share in the primary energy consumption in the world is due to the advantages that oil has over the other constituents of primary energy such as diverse application, comparatively lesser harm to the environment, easy handling, lower capital costs and above all higher efficiency. Crude oil reserves on earth are estimated to be more than 1 trillion barrels that are mostly found in the Middle East, Eastern Europe, Africa and Central America, Middle East being the top reserve holder. It is a clear fact that oil is a limited resource and would finish off in a maximum of 80 years if the current rate of consumption continues. Of these 1 trillion barrels, the world produces around 75 million barrels per day. The largest crude oil producing country is Saudi Arabia followed by Russia and United States of America. The refining capacity of oil in the world as in 2002 was 4166 million tons. The consumption of crude oil in the world has been rising with the change in time and the technological improvements that are accompanying it. Oil is consumed all over the globe, consumption figures standing at 76 million barrels per day and United States of America consumes the maximum level of oil in the world. The major consumer countries of crude oil along with their consumption figures pertaining to the year 2006 are
United States of America (20.7 million barrels/day) China (6.5 million barrels/day) Japan (5.4 million barrels/day) Germany (2.6 million barrels/day) Russia (2.6 million barrels/day) India (2.3 million barrels/day) Canada (2.3 million barrels/day) Brazil (2.2 million barrels/day) South Korea (2.1 million barrels/day) France (2.0 million barrels/day) Mexico (2.0 million barrels/day)
Regarding the world trade situation, one important aspect is the presence of an organization namely OPEC that controls and regulates the exports and imports of most of the countries of the world. OPEC stands for Organization of Petroleum Exporting Countries and the members include all the 11 major crude oil producing countries and nations that are highly dependent on the revenues from oil and oil products. As a matter of fact, OPEC nations have 75% of the worlds total crude oil reserves of 1 trillion barrels and control around 40% of the world oil production. OPEC member countries also dominate the world exports of crude oil contributing to 55% of the total world exports. The major crude oil exporting countries with their exporting figures are
Saudi Arabia* (8.73 million barrels per day) Russia (6.67 million barrels per day) Norway (2.91 million barrels per day) Iran* (2.55 million barrels per day) Venezuela* (2.36 million barrels per day) United Arab Emirates* (2.33 million barrels per day) Kuwait* (2.20 million barrels per day) Nigeria* (2.19 million barrels per day) Mexico (1.80 million barrels per day)
Algeria* (1.68 million barrels per day) Iraq* (1.48 million barrels per day) Libya* (1.34 million barrels per day) Kazakhstan (1.06 million barrels per day) Qatar* (1.02 million barrels per day)
In the above list, the countries with the * sign are the member countries of OPEC. The imports of crude oil are generally done by the countries, which do not have appropriate reserves of oil and are incapable of satisfying the domestic consumption demand. The following is list of the countries with their net import figures that are the major importers of crude oil in the world
United States of America (12.1 million barrels per day) Japan (5.3 million barrels per day) China (2.9 million barrels per day) Germany (2.4 million barrels per day) South Korea (2.2 million barrels per day) France (1.9 million barrels per day) Italy (1.7 million barrels per day) Spain (1.6 million barrels per day) India (1.5 million barrels per day) Taiwan (1.0 million barrels per day)
India was not known to the world in the context of crude oil and its by-product production. As late as in 1889, the presence of oil in India was discovered in Digboi in Assam. First crude oil refinery in India was set up in Digboi in1901. Then the exploration and
Categories of crude oil The various types of crude oils are classified according to their geographical originations, sulfur level and also the density of the oils in some cases. For differentiation depending upon the gravity of oils, the American Petroleum Institute (API) provides with a basis to measure its density, which is called the API gravity. The crude oils are then termed as heavy or light oil. They are also divided as per the sulfur level present in them, as sweet or sour. But, mostly, crude oil is classified on the basis of location only as oils from different locations have different characteristics and they are also named after the places of origin. The main types of crude oil according to their geographic locations are 1. North Sea Crudes Considered as bench mark
Sulfur level - 0.36% Examples - Brent, Forties, Osberg, North Sea Basket, Ekofisk,
API gravity - around 35 degrees Sulfur level 0.2% Examples - Bonny Light, Qua Iboe, Brass River, Escravos, Forcados
API gravity around 37 degrees Sulfur level 1.08% Examples - Dubai and Oman assessments, Murban, Lower Zakum,
Qatar Land, Qatar marine and Banoco Arab Medium 4. United States Crudes
API gravity variable, around 39.6 degrees Sulfur level variable, around 0.24% Examples - West Texas Intermediate (WTI), Mars MOC and Mars,
P - Plus WTI, WTI Calendar Delta, West Texas Sour (WTS), Light Louisiana Sweet (LLS), Heavy Louisiana Sweet (HLS), Engene Island, Wyoming Sweet, Bonito, Mars, Poseidon, Basrah Light, Alaska North Slope (ANS), Line 63, P-Plus Line 63, Thums, Kern River 5. Asia Pacific Crudes
etc
According to April 2008 statistics from the Central Intelligence Agencys World Factbook, global oil production in 2005 was 78.9 million barrels per day. World consumption of oil per day was 80.3 million barrels for the same period, using up 1.7% more than what was produced. 1. Saudi Arabia 11 million barrels per day (13.9% of estimated world total) 2. Russia 9.9 million bpd (12.5%) 3. United States 8.3 million bpd (10.5%) 4. Iran 4.2 million bpd (5.3%) 5. Mexico 3.8 million bpd (4.8%) 6. China 3.7 million bpd (4.7%) 7. Canada 3.1 million bpd (3.9%) 8. Norway 3 million bpd (3.8%) 9. Venezuela 2.8 million bpd (3.6%)
Crude oil is bought and sold in vast quantities (oil is the most traded commodity on the planet) by investors, companies and individuals alike. These days investors maybe looking to broaden their portfolios by investing in commodities, a good example is gold, however oil prices offer larger gains, or indeed losses, as oil futures prices can swing wildly and have done so for the last few years.
Mumbai high (Mumbai) Upper Assam (Assam) Cambay (Gujarat) Krishna-Godavari basin (Andhara Pradesh) Cauvery basin (Tamil Nadu)
The largest crude oil producing oilfield is the Mumbai high field that produces around 260000 barrels per day. Among these production centers, major share of production i.e. 2/3rd share is bagged by the offshore reserves as compared to onshore reserves. The refining capacity of crude oil in India is over 2.1 million barrels per day. The refining sector in India is held by both public and private sector, public sector being the dominating one.
The Indian oil-refining sector has been regulated by the government historically and is still dominated. A new private sector has emerged after the loosening of control by the government. The major units pertaining to the oil sector in India are
Indian Oil Corporation (Public sector) Oil and Natural Gas Corporation (Public sector) Reliance India Ltd (Private sector) Essar Oil Refinery (Private sector) Bharat Petroleum Corporation Ltd (Public sector) Hindustan Petroleum Corporation Ltd (Public sector) Manglore Refineries and Petrochemicals Ltd (Public sector)
Production of the major oil producing countries Various climatic or political supply fluctuations World oil demand Fluctuations in the value of dollar Imports from various world oil organizations like API, DOE Refinery fire
New York Mercantile Exchange (NYMEX) International Petroleum Exchange of London (IPE) Tokyo Commodity Exchange (TOCOM)
In India, crude oil is traded at various commodity exchanges namely Multi Commodity Exchange of India and National Commodity and Derivatives Exchange Ltd.
Oil companies have, naturally enough, extracted the easier to reach , cheap crude oil first. The oil pumped first was on land, near the surface, under pressure, light and 'sweet' (meaning low sulfur content) and therefore easy to refine. The remaining oil is more likely to be off-shore, far from markets, in smaller fields and of lesser quality. It therefore takes ever more money and energy to extract, refine and transport. Under these conditions, the rate of production inevitably drops. Furthermore, all oil fields eventually reach a point where they become economically, and energetically, no longer viable. If it takes the energy of a barrel of oil to extract a barrel of oil, then further extraction is pointless, no matter what the price of oil.
basis of prices at which trades in Index constituents are executed. During trading hours, value of the Index is calculated and disseminated on real time basis. This is done automatically on the
A Free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market. Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index. A Free-float index aids both active and passive investing styles. It aids active managers by enabling them to benchmark their fund returns vis- -vis an investible index. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the passive managers as it enables them to track the index with the least tracking error.
Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. This improves market coverage and sector coverage of the index. For example, under a Full-market capitalization methodology, companies with large market capitalization and low free-float cannot generally be included in the Index because they tend to distort the index by having
Globally, the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX have adopted the same. MSCI, a leading global index provider, shifted all its indices to the Free-float Methodology in 2002. The MSCI India Standard Index, which is followed by Foreign Institutional Investors (FIIs) to track Indian equities, is also based on the Free-float Methodology. NASDAQ-100, the underlying index to the famous Exchange Traded Fund (ETF) - QQQ is based on the Free-float Methodology.
Definition of Free-float
Shareholding of investors that would not, in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in freefloat. Specifically, the following categories of holding are generally excluded from the definition of Free-float:
Shares held by founders/directors/ acquirers which has control element Shares held by persons/ bodies with "Controlling Interest" Shares held by Government as promoter/acquirer Holdings through the FDI Route Strategic stakes by private corporate bodies/ individuals
Equity held by associate/group companies (cross-holdings) Equity held by Employee Welfare Trusts Locked-in shares and shares which would not be sold in the open market in normal course.
We use the symbol r to stand for the correlation. Through the magic of mathematics it turns out that r will always be between -1.0 and +1.0. If the correlation is negative, we have a negative relationship; if it's positive, the relationship is positive
3.1 Objective of the Study: (1) Primary Objective: - To analysis the impact of Crude oil on Sensex. (2) Secondary Objective: - To study the relation between Crude Oil Prices and Sensex Value.
3.2 Types of Research Design: In this project, Causal Research Design is used. Because in this we study cause and effect relationship between Crude Oil Price and Sensex Value. In this Crude Oil Price is cause and Sensex Value is effect.
3.3 Collection Of Data: There are two types of data collection method: (1) Primary Data Collection Method. (2) Secondary Data Collection Method. For research study SECONDARY DATA Collection method is used. The data is taken from: Dalal Street Books, Magazine, Journal, Website.
3.4 Sample Size: 3-year data is collected as I. Monthly Crude Oil Price II.Monthly Sensex Value
3.5 Limitation of the Study: As we study about only 3 years so only on basis of this 3years data we cannot generalize about the whole. Sensex does not have only impact of Crude Oil. Time is limited.
3.6 Scope of the Study: Study can also be done on impact of Crude Oil on nifty. Study of more than 3 years can also be done.
Sensex Valve
14,090.92 12,938.09 13,072.10 13,872.37 14,544.46 14,650.51 15,550.99 15,318.60 17,291.10 19,837.99 19,363.19 20,286.99 17,648.71 17,578.72 15,644.44 17,287.31 16,415.57 13,461.60 14,355.75 14,564.53 12,860.43 9,788.06 9,092.72 9,647.31
Correlation
9,424.24 8,891.61 9,708.50 11,403.25 14,625.25 14,493.84 15,670.31 15,666.64 17,126.84 15,896.28 16,926.22 17,464.81
0.494144694
Sensex Valve
14,090.92 12,938.09 13,072.10 13,872.37 14,544.46 14,650.51 15,550.99 15,318.60 17,291.10 19,837.99 19,363.19 20,286.99 17,648.71 17,578.72 15,644.44 17,287.31 16,415.57 13,461.60 14,355.75 14,564.53 12,860.43 9,788.06 9,092.72 9,647.31 9,424.24 8,891.61 9,708.50 11,403.25 14,625.25
Correlation