CLASS ASSIGNMENT ; BANKING AND INSURANCEFIN301

TOPIC : - GLOBAL OIL PRICESFaculty Name :- Mr.Suresh Kashyap Presented by: Kutoma. Damanjeet Singh Amritpal Singh

CONTENTS :- INTRODUCTION HISTORY MAJOR OIL RESERVES WHAT DETERMINE OIL PRICE AT GLOBAL

LEVEL THE OIL FUTURE MARKET THE FUTURE CONTRACT HOW IS THE OIL PRICE DETERMINE IN INDIA ADMINISTERED PRICE MECHANISM

INTRODUCTION :- The petroleum industry

includes the global processes of exploration, extraction, refining, transporting and marketing petroleum products.

The largest volume products of the industry are fuel oil and gasoline (petrol).

Petroleum (oil) is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics.

HISTORY :- Petroleum is a naturally

occurring liquid found in rock formations.

It consists of a complex mixture of hydrocarbons of various molecular weights, plus other organic compounds.

It is generally accepted that oil is formed mostly from the carbon rich remains of ancient plankton after exposure to heat and pressure in the Earth's crust over hundreds of millions of years.

MAJOR OIL RESERVES COUNTRIES :-

1 Venezuela 297,7402 Saudi Arabia 268,3503 Canada 173,625 - 175,2004 Iran 157,3005 Iraq 140,3006 Kuwait 104,0007 UAE 97,8008 Russia 103,000 9 Libya 48,014

1. VENZUELA :- It is the world largest petroleum

reserve.

Largest suppliers to the United States sending about 1.4 million barrels/day.

The production rate will be same for the next 234 years, said by the OPEC. (Organisation of Petroleum Exporting Countries).

2. SAUDI ARABIA :-

It is the second largest oil reserve country in the world.

It has the one-fifth of the total oil reserves.

WHAT DETERMINES OIL PRICE AT GLOBAL LEVEL

TWO PRIMARY FACTORS SUPPLY AND DEMAND “When the

demand for oil is high, the price will be high and when the demand is low, the price will be low

MARKET SENTIMENT “A subjective measure of how investors are feeling about a security or market

Its an organization that contains nations that sell oil to other nations…example , Saudi Arabia, Iran, Iraq, united Arab emirates, Venezuela etc.

Organization OF PETROLEUM EXPORTING COUNTRIES..”

THE OIL future MARKET

The purpose of OPEC, a cartel, is to control the production of oil and to establish favorable oil prices for the member nations

THE FUTURE CONTRACT

the future contract is a binding agreement that gives one the right to purchase oil by the barrel at predefined price on a predefined date.

However, no company purchases oil at a fixed price as the oil prices are unstable hence change at any time

HOW IS THE PRICE OF OIL DETERMINED IN INDIA?

Let as assume that oil is being imported by IOC (Indian Oil Corporation) from a company in Saudi Arabia. The price at which this oil is purchased is called FOB Price

As the oil is in transit its exposed to certain charges such as… Ocean Freight, import charges like; Insurance charges, Port Dues, Ocean Losses and Customs Duty

WHY DOES INDIA PAY MORE ONE when we add c&f price, import charges and custom

duty we get a very important term called ipp, i.e. import parity price.

IPP = C&F Price + Import Charges + Custom Duty End result high oil price

This will result to Indian oil companies paying more money on than the opec member country

ADMINISTERED PRICE MECHANISM (APM)

this is a mechanism which actually involved artificial price fixing by the government from time to time though the government has no full control over thisNow through Administered Price Mechanism (APM) government is able to provide some subsidies