Crude Oil – Procurement Best Practices & Sourcing Strategies

DESCRIPTION

Crude Oil Market Global Size:

According to ELINT Market Research’s latest crude oil procurement market research report, global production is expected to reach 99.6 Mbpd in 2022, and the worldwide demand has achieved 101.9 Mbpd value in 2023. Further, it is anticipated that the global demand will increase approximately 2-3% from 2023 to 2024.

Market Definition:

Crude oil is a major source of energy and the raw ingredients that help multiple industries to conduct their industrial operations. Its market comprises oil manufacturing, purifying, distributing, and consuming processes. Further, businesses make contract-based alliances with producers to fulfill their oil demands, and the agreement includes some mutually decided factors like oil delivery time frame, quick assistance from the supplier, future objectives, payments, and market enduring strategies.

Major Crude Oil Market Drivers:

1. Expanding Transport Sector –

One of the primary factors driving development in the crude oil market is the constantly expanding transport sector since it mainly depends on crude oil-based goods like kerosene and petrol. Also, multiple vehicles like trucks, cars, ships, aircraft, etc., require crude oil as fuel.

2. Industrial Heating Operations:

Another prime driver for the crude oil market is that several industries rely on this fossil oil to conduct their industrial operations, like manufacturing. Crude oil generates heat in distinct forms like smoke and thermal energy; hence, versatility makes this fossil reliable.

3. Expansion of Chemical Industries –

As the chemical industry is rising, the requirement for crude oil is also increasing since it works as a key fossil in the manufacturing of particular chemicals and petrochemicals. Further, crude oil generates components like ductile, fertilizer, and artificial materials, which assist in chemical procedures.

Crude Oil Market Challenges:

1. High Competition –

Industry participants working in the crude oil market encounter intense competition due to the rising adoption of electric vehicles among people. Hence, low supply rates of various oil factories cause pressure on participants to stay ahead of their competitors.

2. Rise of Natural Gas –

Natural gas is a great alternative to crude oil, which even assists in environmental safety measures. Therefore, oil distributors face much trouble selling crude oils and driving growth.

3. Shifts in Oil Prices –

Changes in oil costs cause challenges among manufacturing companies since they trouble their overall pricing structures. These transitions could occur due to insatiable market dynamics and economic affairs.

Crude Oil Market Opportunities:

1. After Pandemic Development-

The global crude oil market is experiencing rapid new opportunities and growth after the COVID-19 pandemic, which previously caused massive troubles for the oil sector. Hence, in after-lock down situations, industry players conduct crude oil trading activities at regional and global levels.

2. Developing Industrialization –

Developing industrialization in multiple countries majorly in Asia-Pacific, Europe, and North America, driving opportunities for crude oil markets, since it is essential to conduct procedures like transportation, construction, manufacturing, and more.

3. Environment Concerns –

Crude oil manufacturing companies are constantly focusing on eco-friendly manufacturing techniques and materials to protect the environment from large carbon impacts and obey governmental security criteria.

Crude Oil Market Segmentation:

1. Type of Crude Oil –

Crude oil can be divided depending on its API gravity, which calculates oil density and compares it with water. In this context, if crude oil comprises a higher API gravity, then it becomes light and less dense. On the other hand, if the oil has low API gravity then it becomes more viscous.

2. Type of Extraction Method –

The manufacturers employ two different crude oil extraction methods. In the traditional method, wells were drilled into stockpiles. In contrast, new methods involve using a hydraulic drilling approach to obtain oil from shale rocks.

3. Ways to Transport Crude Oil –

The prominent ways to transport crude oil include pipelines, large ships, tanker trucks, and railway carriages on regional or global levels. Manufacturers and distributors can select a way depending on factors like traveling distance, geographical region, infrastructure, and economic affairs.

Major Demand Markets in the Crude Oil Market:

The major demand markets of the crude oil sector include distinct key regions, that are mainly operating consumption activities of this fossil fuel. In this list, the foremost name is North America, which holds a significant 25% consumption rate. Further, the European Union has 15% and Asia has 36% market shares. These countries conduct massive energy and industrialization procedures; thus, they depend on the supply of crude oils.

Impactful Cost Components in the Crude Oil Market:

In the worldwide crude oil sector, one of the most significant cost factors is raw material prices, which are diverse across various countries. In this context, North America requires a substantial 82% count of crude oil to conduct its industrial procedures. Moreover, the EU with 80%, and Asia with 86% rates exhibit that they are majorly dependent on this fossil fuel.

Price Outlook in the Crude Oil Market:

The price outlook for the global crude oil market displays that prices have increased by 7-10% from the second quarter of 2023 compared to the previous quarter. This growth is caused by multiple factors like international affairs, economic events, distribution, demand, etc.; hence, industry players operating in this market keep track of this pricing aspect to extend their business on a global level.

Pricing Models in the Crude Oil Market:

Businesses functioning in the crude oil market can employ the index-based pricing model, which calculates costs relying on Brent and West Texas Intermediate, which are types of crude oil and works as a benchmark to help market players determine fair pricing structures for crude oil. Also, organizations investing in crude oil can negotiate expenses with manufacturers based on this benchmark.

Supplier Power and Buyer Power in the Crude Oil Market:

North American, EU, and Asian regions have medium buyer power in the crude oil market, which implies that these nations can change standards, bargain prices, and choose the best suppliers, from other nations. Contrarily, North America and the EU have high supplier power, which indicates that oil manufacturers and distributors working in this market can significantly adjust pricing layouts. Further, Asia has a medium degree of supplier power; hence, consumers and suppliers have balanced deliberation rights in this territory.

Contract Structure in the Crude Oil Market:

Crude oil manufacturers and businesses operating in the vast landscape of the crude oil market can employ a long-term contract, which stays for more than one year. Further, this prolonged agreement provides stability for both parties to conduct strong partnerships.

Leading Suppliers in the Crude Oil Market:

Major global market participants for crude oil include Royal Dutch Shell​, Exxon Mobil Corp.​, OSJC Lukoil​, Equinor ASA​, and Chevron Corp.​