DEFINITION of 'Unconventional Oil'

A type of petroleum that is produced or obtained through techniques other than traditional oil well extraction. Unconventional oil production is commonly seen as more costly than conventional oil production, less efficient, and is likely to cause more environmental damage. This is because unconventional oil is considered “heavier” and requires more complex procedures to process. However, the ever-increasing global demand for petroleum, combined with its shrinking supply, has more firms turning to unconventional oil. Sources of unconventional oil include synthetic oil, oil sands, and shale formations.

BREAKING DOWN 'Unconventional Oil'

Historically, the exploration and production of oil and natural gas focused on the sources that were easiest to access: pools of oil and gas that could be drilled into and pumped to the surface. This type of production is considered “conventional”. Unconventional sources of oil do not flow near the surface and require different methods of extraction. Shale oil, for example, is produced by using steam or acids to draw oil out of low permeability rocks.

Unconventional oil sources remain relatively untapped compared to conventional sources due to the technical requirements and costs associated with production. Advances in methodologies have made unconventional oil sources more accessible, and have reduced the cost of extraction. As conventional sources of oil are exhausted or become too expensive to use, unconventional sources are expected to make up a larger share of fossil fuel production.

The primary sources of unconventional oils are heavy oils, oil sands, oil shale and tight sands. Oil from these sources may require additional refinement because it is not considered as homogenous as conventional oil, which can make unconventional oil more expensive. However, as conventional sources dry up there is an increasing likelihood that oil will become more expensive in general, thus changing the economics associated with production.

RELATED TERMS
  1. Oil Shale

    A type of sedimentary rock composed chiefly of a combination ...
  2. Shale Oil 

    A type of unconventional oil found in shale formations. It may ...
  3. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
  4. Oil Reserves

    An estimate of the amount of crude oil located in a particular ...
  5. Oil ETF

    A category of exchange-traded funds that invest in companies ...
  6. Initial Production

    The measurement of an oil well's production at the outset. Initial ...
Related Articles
  1. Investing

    Peak Oil: What To Do When The Wells Run Dry

    Find out how to invest and protect your investments in this slippery sector.
  2. Investing

    How Oil Prices Impact the U.S. Economy

    Now that the United States has increased oil production through shale oil and fracking, low oil prices can harm the U.S. oil industry and its workers.
  3. Investing

    The 3 Riskiest Oil ETFs for 2016 (CVX, XOM)

    Discover the characteristics of the riskiest oil ETFS in 2016. Opportunities may exist, but are only for the most risk-tolerant oil speculators.
  4. Investing

    Shale Oil vs. Oil Shale: What's the Difference?

    The biggest difference between oil shale and shale oil is that one is still a money making endeavor.
  5. Investing

    Will Shale Oil Companies Go Bankrupt?

    An overview of shale oil companies and the threats they face in the aftermath of the decline in crude oil prices.
  6. Financial Advisor

    Oil Prices Expected to Surge in 2017

    Oil has made headlines for its plummeting prices this year. When will prices rise again?
  7. Investing

    The Economics of Oil Extraction

    The overall economics of oil extraction is that there is money in it - both for extraction companies and their investors.
  8. Insights

    Who Wins With Low Energy Prices? 

    Low oil prices are here to stay for some time. Which economies will benefit or lose from the low oil price regime?
  9. Investing

    How Does Crude Oil Affect Gas Prices?

    Find out how this commodity's fluctuating price affects more than just how much you pay at the pump.
  10. Investing

    Oil Boom 2.0: Be Sure You Are Ready to Invest

    Learn about the potential for oil boom 2.0, and discover why some experts say this is a good time to invest in oil companies and ETFs.
RELATED FAQS
  1. What causes oil prices to fluctuate?

    Discover how OPEC, demand and supply, natural disasters, production costs and political instability are some of the major ... Read Answer >>
  2. Why are stocks and oil so correlated right now?

    Learn whether the stock market and oil prices will continue their highly correlated price relationship or decouple again ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center