Understanding Oil – An analyst’s starting point

A year ago when we first started looking at oil, it was like a different world with a different language. To bring some sanity and order to our confusion we started with a list of very simple and basic questions to better understand the behavioral dynamics of oil.

The first question dealt with supply. How much oil is there, both under and above the ground and at when needed at what rate can bring it from under the ground to above ground. How has this trend changed over the years? This in a very limited started the supply side analysis.

The second dealt with demand. How is oil consumed and who consumes it most? How has this trend changed over the years?

The third question dealt with dominance. Are there any dominant players on the supply and demand side of oil and what are the drivers behind their dominance?

The fourth dealt with products. Is there one oil, or different grades and shades of it? What defines these shades and who owns what shades?

The fifth dealt with substitutes. Given the many usage of oil, what alternates exists for each of these uses and how does their pricing works?

The sixth dealt with markets. How and where is oil traded and who trades it?

The last and final dealt with the environment. How does the eco-system around oil works? How has it changed over the years? Where is it going?

Over the next few posts, we will try and answer each of these questions in more detail. The answer will mark and map the evolution of an analyst trying to decipher the oil puzzle.