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Crude oil is a mixture of hydrocarbons (molecules of carbon and hydrogen) formed from the decomposition of carbon-based plant and animal organisms that accumulated in ancient seabed and lakes, buried under high pressures and high temperatures for millions of years. Over the course of those millions of years, the remains were covered by layers of rock, sand, and silt. A combination of pressure and heat from the layers turned those remains into crude oil. Because it dates back millions of years and is formed from fossilized remains, crude oil is known as a "fossil fuel."

Crude oil is extracted from the earth and later refined into products such as gasoline, jet fuel, waxes, asphalt, lubricating oil, various plastics, and a wide variety of other consumer goods. Interestingly, a 42-gallon barrel of crude oil produces about 45 gallons of petroleum products because of a refining phenomenon called refinery processing gain.

There are five basic uses for crude oil—transportation, industrial, residential, commercial, and electric power.

Types of Crude Oil

The quality of oil can vary partly from the location from which it comes. This is because crude oil forms differently due to the geographical makeup of the locations.

The oil industry and regulators use crude oil's density and sulfur content to classify it into several categories. Oil can be grouped by sulfur content as either sweet or sour, or by density as either heavy or light. Using these two groups—and by creating a group in between—oil is classified into six classes by the industry and investors (but more than 160 types can be traded):

  • Heavy/Sweet
  • Heavy/Sour
  • Medium/Sweet
  • Medium Sour
  • Light/Sweet
  • Light/Sour

Heavy oils are used to make industrial products like asphalt and plastics. Medium oils have sulfur content that falls somewhere between heavy and light. Light oils are generally used in diesel, gasoline, and aviation fuel because they take less processing. Sour crude has more sulfur and carbon than light crude and requires more refining; thus, it incurs more costs.

EPA Classifications for Crude Oil

The EPA categorizes crude oil into four main types of crude oil: Class A, Class B, Class C, and Class D. These are important for learning more about general toxicity and physical state changes:

  • Class A: Most refined products and many high-quality, light crude oils are included in Class A. Despite how valuable they are, Class A oils can be extremely toxic to humans, animals, and other organisms.
  • Class B: These are waxy and oily in feel and are less toxic than Class A oils. They stick more firmly to surfaces than Class A oils. As temperatures rise, they are more likely to penetrate porous layers or surfaces.
  • Class C: These are usually brown or black, have a similar density to water, and tend to sink. This type of oil doesn't penetrate porous surfaces as quickly as other types of crude oil. In the event of evaporation or weathering of volatiles in a Class C oil, it may produce solid or tarry Class D oil. Even though Class C crude oil is less toxic, it can still harm wildlife.
  • Class D: These are residual oils, heavy crude oils, select high paraffin-based oils, and certain weathered oils. Typically, Class D oils are dark black or brown, and if they melt, they can coat surfaces, making cleaning up a spill very difficult. Class D crude oil is relatively nontoxic.

Factors That Influence Crude Oil Prices

Crude oil prices are based on geopolitics, natural events, and organizational influences, which, in turn, dictate production, supply, and demand.  Factors that can impact the price of crude oil include:

  • Weekly reports from the U.S. Energy Information Administration (EIA) and American Petroleum Institute (API)
  • Organization of the Petroleum Exporting Countries (OPEC) meetings
  • Gross domestic product (GDP) reports
  • Currency values (especially the U.S. dollar)
  • Oil Type
  • Refinery capacity
  • Natural gas inventory
  • Weather events
  • Import/export policy changes
  • Labor strikes
  • Military conflict
  • Infrastructure disruption