From ground to market: Hydrocarbons and harvests: the other extraction chains

4.1 Oil needs a source rock, a reservoir and a trap, unless you frack the source

Conway sets out the conventional recipe. Organic matter such as plankton settles on an ancient seabed and is buried and heated into oil and gas in a source rock. The hydrocarbons migrate into a porous, permeable reservoir rock and are held there under an impermeable cap: a trap. Ghawar in Saudi Arabia, a single field 175 miles long, has produced more than 70 billion barrels and holds about 50 billion more.

In a conventional field, natural pressure pushes oil to the well, and how fast a field is drained affects how much is ever recovered. Yergin describes the rule of capture in early US oil law: each owner above a common pool could take all he could get, so everyone drilled and pumped as fast as possible. In the 1920s Henry Doherty argued that this exhausted reservoir pressure and stranded oil underground, and pressed for fields to be unitised and produced at engineered rates.

Shale reverses the logic. Instead of seeking traps, operators drill the source rock itself. George Mitchell's engineers found that hydraulic fracturing made the Barnett Shale productive only when combined with horizontal wells that expose far more rock (Conway). Radetzki and Wårell report US gas output up about 70 per cent from 2005 to 2018 and oil up 125 per cent from 2008 to 2018. Because gas trades in regional markets, US gas prices fell from an average of $7.4 per million BTU in 2004-2008 to below $4. In 2024 the United States produced about 21 per cent of the world's oil, as the Crude oil tile shows.

• Conway (2023), Material World · pdf pp. 239-240, 245-246
• Yergin (1991), The Prize · pdf pp. 361-362
• Radetzki & Wårell (2021), A Handbook of Primary Commodities · pdf pp. 94-96

4.2 A refinery splits a barrel into cuts, then cracks heavy cuts into light ones

Crude is a mixture of hydrocarbons, and a refinery's first job is distillation. Geman lists the cuts from the top of the column down: liquefied petroleum gases, gasoline and naphtha, jet fuel and kerosene, gasoil and diesel, and fuel oil, with residues at the bottom. Lighter products generally sell for more, so refiners convert. Cracking, by heat or catalyst, breaks long low-value molecules into shorter ones, wringing more gasoline from the residues.

History shows why conversion matters. Yergin reports that simple distillation could yield only 15 to 18 per cent of a barrel as gasoline, 20 at most. As cars multiplied, US gasoline sales passed kerosene in 1910 and the gasoline price nearly doubled between late 1911 and early 1913. William Burton's thermal cracking at Standard of Indiana, running from 1913, raised the gasoline share to about 45 per cent.

Crude quality sets the work required. Light crudes are less dense; sweet crudes carry little sulphur. Conway explains that lighter, sweeter crudes need less processing and usually fetch more. Each refinery is built for a particular diet, so a buyer cannot freely swap one crude for another. Geman put world capacity at about 84 million barrels a day in 2003, with typical plants of 50,000 to 150,000 barrels a day costing a few billion dollars. The margin is the crack spread: product value less crude cost. Because products are made together, their prices move together. Jet fuel normally trades $20 to $50 a tonne above gasoil, but the gap hit $200 before the 1991 Gulf War.

• Geman (2005), Commodities and Commodity Derivatives · pdf pp. 227-228
• Yergin (1991), The Prize · pdf pp. 171-172
• Conway (2023), Material World · pdf pp. 250-252
• Pirrong (2014), The Economics of Commodity Trading Firms · pdf p. 7

4.3 Crop supply is area times yield, plus last year's stocks

Geman sets out a crop's balance sheet. Supply is carry-in stocks plus production plus imports. Demand is domestic use plus exports. What remains is the carry-over, which links one crop year's prices to the next. Production is area harvested times yield, and both are revealed gradually: the USDA's planting intentions report in late March and acreage report in late June move prices.

The October 2026 WASDE shows the arithmetic for US maize in 2026/27. Farmers planted 96.8 million acres and expect to harvest 88.5 million. At a projected 181.2 bushels an acre, output is about 16.0 billion bushels. Add 2.1 billion bushels of carry-in, and supply is 18.2 billion. Use is projected at 16.3 billion: 6.0 billion for animal feed, 5.65 billion for ethanol, 3.3 billion for export and the rest for food and industry. Ending stocks of 1.85 billion bushels are about 11 per cent of use. Geman calls the stocks-to-use ratio the key gauge of tightness: the lower it is, the harder prices react to a weather shock.

The seasons spread risk across the year. With big producers in both hemispheres, every quarter is a planting, growing or harvest season for some major crop, so weather news never stops (Geman). On the Soybeans tile, Brazil and the United States together grow about two-thirds of the world's crop in opposite seasons. Response times differ too. Radetzki and Wårell note that wheat or sugar output can expand between two seasons by planting more land, while coffee and palm oil take years. New cocoa trees, Geman notes, take about seven years to bear fruit.

• Geman (2005), Commodities and Commodity Derivatives · pdf pp. 154-155, 164, 173
• USDA WASDE, October 2026 web ↗ · U.S. Feed Grain and Corn Supply and Use, p. 12
• Radetzki & Wårell (2021), A Handbook of Primary Commodities · pdf p. 42

4.4 Seed, fertiliser and feed conversion drove the farm productivity revolution

Yields are the farm counterpart of ore grade, except that they can be raised. Morgan records US corn yields rising from about 50 to 75 and then nearly 100 bushels an acre by the late 1960s as hybrid seed and chemical fertiliser spread; the 2026 projection of 181 shows the climb continued. Hybrids yield 20 to 30 per cent more than open-pollinated corn but do not breed true, so farmers buy new seed every year.

The Green Revolution did for wheat and rice what hybrids did for corn. Morgan describes the Rockefeller-funded programme in Mexico, begun in 1943, in which Norman Borlaug's team crossed Mexican wheats with Japanese dwarf strains such as Norin-10. The short, stiff stems carried heavy heads without collapsing, but only with ample fertiliser and irrigation. Developing countries' wheat output rose from 50 to 80 million tonnes in the 1960s. Morgan also records the limits: extra nitrogen stopped raising corn yields much, and the gains were unevenly shared.

The inputs are commodities in their own right, known as NPK. Nitrogen comes from the Haber-Bosch process, which fixes atmospheric nitrogen into ammonia using natural gas; Conway reports that roughly half the nitrogen spread on fields ends up in air and water. Phosphorus comes from phosphate rock, with Morocco holding nearly three-quarters of reserves. Potassium comes from potash mined from buried evaporite seas. Conway put Russia and Belarus at roughly a quarter of world potash in 2022; for 2024, USGS figures give the pair about a third and the Potash tile about 35 per cent. Much grain then goes to animals. Morgan gives about 7 pounds of grain per pound of beef gained, against 2 for chicken and 3 for pork, so rising meat demand multiplies grain demand.

• Morgan (1979), Merchants of Grain · pdf pp. 147-148, 202-203, 330-333
• Conway (2023), Material World · pdf pp. 134-137, 139-140
• USGS Mineral Commodity Summaries 2026, Potash web ↗ · World Mine Production and Reserves

See it in the table

Check your understanding

What made the Barnett Shale productive?

In the October 2026 WASDE, US maize ending stocks of 1.85 billion bushels sit against projected use of 16.3 billion. The stocks-to-use ratio is about:

Why did William Burton's thermal cracking matter so much in 1913?