What is the difference between “oil” and “crude”? These terms are often used interchangeably, as if they were synonyms. Yet, each refers to something quite different—and that distinction lies at the heart of the current state of the oil market: there is far more oil than there is crude.
If we look at crude oil on its own, the balance between supply and demand appears relatively tight, which would normally suggest upward pressure on prices. However, once you factor in all other types (the so-called condensates, natural gas liquids and biofuels), the picture becomes much looser. As a result, prices have been falling. At the end of the 1990s, crude oil accounted for almost 90% of the total oil market, making it a reliable indicator of overall supply and demand. Since then, however, three key developments have boosted the share of those other types of oil: the rise in biofuel production; the surge in natural gas liquid output driven by the US shale revolution; and OPEC members exploiting a legal loophole to bypass their self-imposed production limits. The result? Crude’s share of the total oil market has fallen to 74%.
The boom in the production of natural gas liquids (NGLs) and condensates has coincided with a shift in global oil demand growth, in particular towards petrochemical products. Last year, more than half of the increase in global oil consumption came from just ethane, propane and butane. This year, over 40% of demand growth is expected to come from these same three products. So, why is production booming? It is a classic shell game being played by the OPEC. When the cartel’s current production quota system was introduced in the 1980s, most of the members’ output was crude oil.
Today, the incentive for OPEC members to produce non-crude oil liquids is enormous, since there are virtually no limits on their production. This has led to most members investing heavily in facilities to extract NGLs.
OPEC nations are prioritising the development of liquid-rich gas fields rather than turning to crude. A convenient workaround to bypass production quotas. Saudi Arabia is the country to watch. While the Kingdom shelved its plan to expand crude production capacity last year, it is pressing ahead with the development of a vast gas play expected to yield substantial volumes of NGLs. It is anticipated that the Jafurah gas field will add nearly 1 million barrels per day of additional liquids between 2025 and 2030, volumes that the Kingdom could produce at will, outside the cartel’s quota. Within the broader OPEC+ alliance, members are also extracting significant quantities of NGLs and other non-crude products, with plans to increase output further.
On top of that, the US shale gas revolution has flooded the energy market with NGLs. Since the start of the boom in 2008, US crude oil production has increased by around 150%, while NGL output has surged by nearly 300%. To grasp the scale of this growth, it is useful to think of US NGL production as if it were a country in its own right. On that basis, it would rank as the fourth-largest oil producer, surpassed only by US crude production and the total oil output of Saudi Arabia and Russia.
When it comes to pricing oil, it helps to count the barrels—all of them.