Peiyang Chemical Equipment Co., Ltd.
Why Crude oil can Become the King of the Bulk Commodity

The crude oil, which is the black gold, is dispensable for developing the economy. Since the Industrial Revolution of the eighteenth-century, the economic growth of each country has relied on this liquid. Its existing meaning has surpasses beyond other fossil fuels such as coal and natural gas. As the most efficient natural product, which has the most secondary products, the crude oil is honored as the life of industry.

The earliest commodity trading can be dated back from 1972 in Dubai which is one of the member states of OPEC and the largest producer of crude oil around the world. In 1972, the offer price of the commodity trading for crude oil futures was $1.9 / barrel, while the Brent and American crude oil(WTI light crude of west German) began opening transaction in 1976, with the opening quotation is about $12. When the American crude oil and Brent started trading, they were difficult to purchase because their output was lower than Dubai crude oil, resulting in small volumes of transactions. Moreover, in the initial stage, the volume of American crude oil is weaker than Brent oil and Dubai crude oil regarding the transaction price and the turnover for the light crude of west German has poor quality relatively. At present, Dubai crude oil, American crude oil and Brent are integrated into the crude oil( the quotation has not been decided yet). The prices of crude oil have reached a consensus and are more fully geared to the global market.

During the Age of Wind, the western countries has got under way a large—scale plundering for resources from the early colonial period. While the reasons why the delivery of crude oil  has become futures were to solve the insufficient supply of crude oil in the early period. To take advantage of futures with open to booking, to sell the products to the buyer who gave a high price. However, the self—owned industrial value of crude oil makes it be a bulk commodity held by all countries from the very first day of its futures.

The crude oil often triggered geopolitical militarization, which is no longer new. From the Iraq war to this year's war in the Middle East, they were mainly for crude oil. From the fight for crude oil mining to restrict the export of crude oil to drive up prices, no matter how trivial the reason is, can also become the fuse as long as it is around the crude oil. The opening trade of futures led to the geopolitical struggle for crude oil and shifted from military to economic. The crude oil leading to economic warfare has become commonplace, and the United States  has economic sanctions against Russia for two times by the sword of crude oil. The fall in crude oil prices in 2014 reduced the country's credit rating to junk levels.But, the OPEC also continues to borrow the falling oil prices to suppress potential of shale oil industry in the United States. It can be mirrored that the topic of recent wars was always the crude oil, the life of industry. They would fight for it all the time.

Of course, the nature of crude oil which is a bulk commodity has a large difference with other bulk commodities like the farm products and noble metals. The futures of bulk commodity is originally for avoid the seasonal changing of output so that it keeps the long—term unchanged demand. For example, gold, silver, corn and soybeans appeared because of it. Nevertheless, the crude oil has nothing to do with seasonal changing of output but its demand season changes obviously. The crude oil has no seasonal change in production, with only seasonal demand changes, which fundamentally determines crude oil as a member of the hedge goods. Several major extensions of the financial market, like the stock market, commodities, bonds, foreign exchange, stock markets, bonds have never been leveraged. The foreign exchange is mainly used to hedge risks, and bulk commodities are mainly used for income. Other hedging bulk commodities also include the gold and silver that we are familiar with.

Compared with gold and silver, the volume of crude oil is still leading, why? These varieties are affected by geopolitics, and they are also hedging, so why crude oil is so unique?

The reason is very simple. Because crude oil is one—time consumption energy, when it is used, it is gone. If you want to continue to use, you have to keep buying. What’s more, the crude oil is fossil fuel, which has limited storage as we all know. Instead, the gold and silver are different. When you buy them, they will not be consumed. Thus, the gold and silver are becoming more as they are exploited constantly. For crude oil, its total is decreasing due to it is consumed everyday. More importantly, the gold and silver are not valuable in themselves, as their value is shared by the people.

In the past, before the Industrial Age, people can chiefly exploited 7 metals: gold, silver, copper, iron ,tin and mercury. Mercury is liquid at normal temperature; iron is too heavy; tin is too brittle; lead is too soft; iron is too hard; copper and silver are made into coins, but it is easy to rust (silver is not pure in the past). Thegold is not easy to rust, and it has good ductility which makes it easy to press forming. And its color has special metallic luster, differing it from other metals and common objects easily. So it has been accepted as a valuable currency. While the crude oil is varied. The secondary polymer of crude oil (plastic, polymer solvent) and refined oil, have the value of daily use.There is no denying the value of industrial production capacity of crude oil, which has created the intrinsic value of crude oil.

Crude oil, which has its own endless industrial value, makes it the best financial derivative as recognized. Big investment banks such as Goldman Sachs and Morgan are scrambling to take on the industry's leading talent and invest heavily in the oil investment sector. There is no explanation for the importance of the oil market in the field of investment, nor is it the best explanation for why crude oil will be the king of bulk commodities.