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. Shale Oil

    Shale oil is a type of unconventional oil found in shale rock ...
  2. Oil Reserves

    Oil reserves are an estimate of the amount of crude oil located ...
  3. Oil ETF

    An oil ETF is a type of fund that invests in companies involved ...
  4. Unconventional Cash Flow

    An unconventional cash flow is a series of inward and outward ...
  5. Enhanced Oil Recovery (EOR)

    Enhanced oil recovery is the process of obtaining stranded oil ...
  6. Estimated Ultimate Recovery - EUR

    Estimated Ultimate Recovery (EUR) is a production term used in ...
Related Articles
  1. Investing

    Unconventional Oil And Gas ETF Debuts

    The Market Vectors Unconventional Oil & Gas ETF offers unique oil and natural gas plays for investors.
  2. Investing

    Peak Oil: What To Do When The Wells Run Dry

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

    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.
  5. Financial Advisor

    Oil Prices Expected to Surge in 2017

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

    OPEC vs the U.S.: Who Controls Oil Prices?

    In the last 100 years, pricing power for oil has swung between the United States and OPEC. What does the future hold?
  7. Investing

    Falling Oil Prices Could Bankrupt These Countries

    The price of crude oil has fallen sharply as of late, trading around $45 per barrel down from a high of over $100 just six months ago. Many oil-producing countries are feeling the pinch as oil ...
  8. Investing

    Take Advantage of Cheap Oil, Invest in these ETFs

    With crude oil prices at record lows, investors should consider oil ETFs over oil company stocks as ETFs more closely mirror the price of oil
  9. Investing

    Guide To Oil And Gas Plays In North America

    Oil and gas shales in North America have been known for decades, but most investors don’t know it exists, or what is produced.
  10. Investing

    Impact of Low Oil Prices on Oil Sellers and Buyers

    The impact of the fall in oil prices globally is nuanced due to the complex economies of some countries --some of which are both oil producers and buyers.
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 did oil prices drop so much in 2014?

    Learn the roles that decreased global demand, new supply sources in North America, and actions taken by Saudi Arabia played ... Read Answer >>
  3. 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 >>
  4. What are average operating expenses for the oil and gas sector?

    Learn about the average operating expenses and average operating expenses margin for the oil and gas sector and how they ... Read Answer >>
Hot Definitions
  1. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  2. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  3. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  4. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  5. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  6. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
Trading Center