Crude oil

Crude oil is a viscous liquid that is not soluble in water and which is used for mainly for lubrication and fuel. Mineral oils, such as petroleum, are obtained from geological sources. The latter is not formed by decayed matter, as that contradicts the Creationist worldview, but instead during a theobaric process. This oil existed in pristine state before the Flood, and moved during the Flood into the reservoirs where Noah emerged from the Ark, and where we now find it.^[1] Consequently, much of the oil is found in the Middle East, in addition to massive deposits in Canada^[2] and Venezuela.^[3]

Crude oil influences politics, elections, and military conflicts. The price of crude oil in inflation-adjusted dollars has ranged from $1.17 per barrel in 1946 to a high of $140 per barrel in June 2008.^[4] Oil and gas production in the U.S. is expected to decline in the latter part of 2023.^[5]

On September 23, 2022, oil crude prices fell to a near-low for 2022 of $78.74 a barrel,^[6] after oil prices had soared for much of the year due to the Russia-Ukraine War. This price collapse stoked predictions of a recession.

In early October 2022, "Oil prices have fallen to roughly $80 a barrel from more than $120 in early June amid growing fears about the prospect of a global economic recession."^[7]

Uses

Uses of crude oil include the following:

Heating, by burning the oil
Illumination, in oil lamps
Generation of electricity, by burning the oil to turn water to steam used to run generators
Lubrication
Plastics

Where does crude oil come from?

According to a Young Earth Creationist model, a theobaric process produced the oil supply. During the Creation Week, God created a mature earth, and in the Garden of Eden, everything was ready for its first occupants. There must have been mature plants and trees to supply food for immediate consumption, and oil for various uses (e.g., anointing, lubrication - see oil#uses). It remained relatively undisturbed until the Noachian Flood.

This oil, created in deep primordial repositories during the Creation Week migrated upwards into present-day reservoirs during the Noachian Flood. During the Flood, intense geological activity occurred whilst the “fountains of the great deep” described in Genesis were active, though after day 150 of the Flood God said that the fountains were closed, so we would expect a sharp cut-off in hydraulic activity. During the Flood, the primordial repositories containing the hydrocarbons will have been breached and fluids released.^[8]

Many countries produce crude oil, but fewer than 20 countries produce more than they consume. All other countries must import crude oil, and/or petroleum products in order to satisfy petroleum demand.

Types

There are hundreds of different “types” of crude oil, differing in their properties (API Gravity, Sulfur Content, Total Acid Number (TAN), Metals Content, Pour Point, Viscosity, Boiling Range or profile). Some of the best-recognized crudes are Brent (North Sea), West Texas Intermediate (WTI), and Alaska North Slope, for example. “Sweet” crude has low sulfur content, and “Sour” crude has high sulfur. The sulfur must be removed in a process called hydrodesulfurization, and it adds cost in the refining process. Thus, a sweet crude has more intrinsic value than a sour crude with similar API gravity and other properties. Refineries are built to handle only the particular type of crude oils that are produced close by, so that they can make the products that are in greatest demand in their geographic vicinity. In other words, a refinery built in the Netherlands to handle Urals crude is not suited to handle West Texas crude.

Light crude such as West Texas Intermediate produces proportionally more gasoline and less middle distillate. Running lighter crude when you need diesel and jet fuel makes the allocation problem worse, not better, because it shrinks the pool of middle distillate that both diesel and jet fuel compete for.

Middle distillates: Diesel and jet fuel

See also: Guns or butter

An unrefined barrel of oil from the wellhead out of the ground consists of segments, with the middle-distillate portion of the barrel providing the raw material from which both diesel and jet fuel are derived. That segment is the critical fuel for the real economy because diesel runs freight, rail, agriculture, construction, and distribution, while jet fuel supports both civil aviation and military air operations. Military jet fuel (JP-8) and civilian diesel are not refined from separate barrels — they compete for the same distillate cut from every barrel processed.

Middle distillates compete with each other for production of diesel or jet fuel.

Diesel and jet fuel are not different products from different parts of the refinery. They are competing claims on the same physical fraction of crude oil — the middle distillate cut that comes off the atmospheric distillation column in the same boiling range. Every refinery scheduling decision is, at its core, a daily argument about how to divide that fraction between the two products.

Every gallon of military fuel is a gallon not available to a trucking company, a farmer, or an airline.

Diesel

Of all the downstream effects, diesel tightness is the most economically dangerous and the fastest-moving. Diesel is not a lifestyle fuel. It moves every truck on every highway, powers every locomotive, runs every tractor during planting and harvest, and drives every piece of heavy construction equipment. When a family decides gas prices are too high, they drive less. When a freight company decides diesel is too expensive or too scarce, it cannot defer the shipment — the grocery store shelves just go empty. Diesel demand is largely inelastic. The economy cannot negotiate with it the way it can with gasoline.

Unlike gasoline, which is a consumer cost, diesel is an input cost — embedded in every freight shipment, every food delivery, every industrial process. When diesel tightens, the price increase doesn’t stop at the pump; it cascades through supply chains and lands simultaneously on freight rates, grocery prices, manufacturing margins, and retail costs. That kind of broad-based input inflation is one of the more reliable causes of recession, because it compresses margins economy-wide while simultaneously suppressing consumer purchasing power.

Aviation fuel

Jet fuel and diesel are not different products from different parts of the refinery. Military jet fuel (JP-8) is pulled from the same middle distillate fraction as diesel. Like diesel, the military's operational requirements are also elastic. Diesel and aviation fuel compete for one fixed supply of middle distillate from each barrel of crude oil processed at the refinery. The military does not queue behind civilian demand — it has priority.

Making JP-8 from sour crude to military specification requires substantial hydrogen — for sulfur removal, for aromatic ring saturation to meet smoke point requirements, and for freeze point management. Making ultra-low-sulfur diesel (ULSD) from the same sour crude also requires substantial hydrogen — even more, to reach the ≤15 ppm sulfur specification. A refinery's hydrogen generation capacity is finite. Every cubic foot of hydrogen diverted to jet fuel processing is a cubic foot unavailable for diesel desulfurization. At the margin, maximizing JP-8 production makes the diesel quality problem worse, not just the diesel volume problem.

Value

The value of crude is determined by the value of the components (“products”) that can be recovered from the crude, as well as the effort (“energy”) it takes to extract those products for sale. This is where refineries play an important role. Crude contains energy products, for example, gasoline, diesel, aviation fuel, and heating oil. These products are sold on a “per volume” basis, e.g., dollars per gallon or euros per liter. They are valued for their energy (heat) content.

On the other hand, crude contains many products that are valued for their chemical properties, such as ethylene and propylene (used to make plastics), benzene/toluene/xylenes (used to make a host of products), and a number of complex polycyclic compounds that are building blocks for production of, for example, pharmaceuticals and other sophisticated products. These products are sold on a weight basis, e.g., dollars per pound or euros per kilogram (or even euros per gram!). In general, chemical value is higher than fuel (heat) value.

Global trade

Historically, North America automobile production has been geared toward gasoline-powered personal autos. Diesel engines have been used primarily in commercial heavy transportation vehicles (trucks). Diesel-powered vehicles, while much more fuel efficient, were more expensive and had a reputation of being “dirty”. Personal vehicles with diesel engines in the U.S. comprise only 4% of vehicle sales. Another factor contributing to the imbalance between gasoline and diesel is that crude oil in the U.S. has historically been lighter in API gravity, therefore the refineries naturally produced more gasoline than diesel, and gasoline was (and is) less expensive than diesel.

On the other hand, other countries have had access to crude oil of a heavier gravity, and refineries in those countries (including Europe) easily produce a large proportion of diesel fuel. So naturally the personal vehicle of choice was diesel-powered.

Up until the early 21st century, a robust import/export trade of diesel and gasoline existed between the U.S. and Europe. Economically, that trade flow could accommodate the logistics costs of shipping finished products across the Atlantic Ocean, and the excess diesel in the U.S. was absorbed by the European market, and the reverse flow for gasoline was profitable for European refiners. Since about 2010 Europe has begun to legislate the diesel-powered car out of existence, so the diesel flow from the U.S. has shifted to other continents, such as South America.

Europe, on the other hand, needs more gasoline than in the past, as sales of petrol-powered cars have surpassed 70% of total automobile sales in some EU countries. And Europe must find markets for the excess diesel produced by their heavy-crude refineries.

In addition to this destabilizing trend that started in the 2010s, a further upheaval arrived in 2022 with discussions to ban Russian crude in the EU complementary with the NATO war in Ukraine. Some EU countries objected to a ban because they are landlocked and rely on pipeline deliveries, thus they do not have logistical alternatives. Others objected to an outright ban because of the fear of skyrocketing crude prices worldwide, and fears of the effect that would have on world economies.

Ultimately, the G7 settled on the idea of a price cap on Russian crude. Because of the objections of the EU countries stated above, they were exempted from the cap mechanism by imposing the cap on waterborne shipments of crude only.

Crude oil production in 2023: US, Saudi Arabia and Russia

Fracking in the US has brought its daily production up to about half of the United States daily consumption. The United States is still dependent on foreign suppliers to meet daily demand.

In the fall of 2023 Saudi Arabia and Russia jointly agreed to cut back production.^[9]

In November 2023, PBS reported that Russian oil was being imported into the United States despite Russian sanctions.^[10] The Pentagon remained a large customer for Russian oil.^[11] The Defense Industry of Ukraine reported that the German tanker AVENCA of delivered 50 thousand tons of Russian oil products to the main US Navy base in Norfolk on a direct route from Novorossiysk in the Russian Federation.^[12]

Naval Station Norfolk, the main naval base of the US Navy on the east coast of the country, hosted a tanker on 7 December 2023 that delivered 50,000 tonnes of Russian oil products to the facility on a direct voyage from Novorossiysk in the Russian Federation.^[13]

US fracking

Within the last few decades, “tight oil” formations (e.g., shale formations) have been exploited by using newer technology. These wells were previously not economical to drill, but the higher price of crude has made this technology competitive. Tight formations consist of oil dispersed in porous, but not very permeable rock formations. The oil is recovered by hydro-fracturing the shale in place, and then pumping the oil that is freed from the rock. The “fracking” process uses water injected under extremely high pressure containing a proppant, usually sand. The pressure creates/widens fissures in the rock, and the sand “props” the fissures open to allow flow of oil (thanks to reader Bash for pointing out my previous incorrect description of the fracking process—Piquet).

While conventional crude reservoirs are usually large in both the vertical and lateral directions, shale oil formations are typically wide laterally, but shallow in the vertical dimension. Therefore, conventional vertical drilling is not capable of effectively recovering oil from such formations due to the shallowness, and the impermeability of the rock structure containing the crude. The development of directional horizontal drilling methods has made recovery of shale oil quite successful and economically viable (see the left depiction in the image above).

The U.S. Shale Revolution

Billionaire Harold Hamm Explains How Fracking Made America The World's Energy Superpower - video

Can Fracking Survive at $50 a Barrel?, Investopedia, 2022

Biden's ANWR ban

Donald Trump, "in a televised interview with Fox News’ Sean Hannity Tuesday night, said that he would reverse a decision by President Joe Biden to cancel oil and gas leases in Alaska’s Arctic National Wildlife Refuge."^[14]

"We have such incredible wealth under our feet." - Donald Trump on the United States wealth of oil resources.^[15]

In 2023, "the Oil and Gas Workers’ Association (OGWA) endorsed former president Donald Trump as their champion in next year’s presidential election.... According to the OGWA,... “President Trump has been the most pro-American Oil & Gas Workers president ever, with 11.3 million jobs supported by our vital industry in 2019. Under President Trump's leadership, our country became energy dominant. The booming economy of the Trump years benefitted every American”.^[16]

Urals oil

See also: Urals oil

Urals oil is a blend of heavy sour oil from the Urals mountains and Volga river area and light oil from Western Siberian fields. Germany, the Netherlands, Italy, and other EU countries historically relied on Urals crude, and their refineries were “tuned” to Russian (Urals) crude.

European refineries have historically used medium/heavy crudes in order to maximize middle distillate production because diesel has been the transportation fuel of choice in Europe. However, concern over particulate matter in the air caused by diesel combustion engines has led certain government agencies to ban diesel automobiles. These requirements were to be implemented over time, but Russian sanctions on crude exacerbated the problems faced by refineries that were designed to efficiently process the Russian crudes. This also introduced logistics challenges because the newly-sourced crude cannot be delivered as efficiently as the pipeline deliveries from Central Asia. The “lost” deliveries of Russian crude have been somewhat replaced by crude from the Middle East and the US via ocean-going vessels.

Russian volume and revenue chart

Russian urals crude prices as of December 25, 2023^[17]