The Oil Industry and the Factors that influence Oil Prices – Chapter 1: History of the Oil Industry

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Updated: Mar 5, 2019, 13:14 GMT+00:00

Known by many as “black gold”, oil has an increasingly big impact on our lives as our world’s economy becomes more developed. Our modern societies use oil

The Oil Industry and the Factors that influence Oil Prices – Chapter 1: History of the Oil Industry

Known by many as “black gold”, oil has an increasingly big impact on our lives as our world’s economy becomes more developed. Our modern societies use oil to help us attain a high degree of mobility at sea, in the air and on land that was inconceivable less than a century ago. Then, oil was regarded as a waste product in the search for ground water. Although known to man for thousands of years, drilling for oil only began in around 1857 inGermany.

It wasn’t until 1859 at an oil well drilled by Edwin L. Drake near Oil creek, Pennsylvania that commercial exploitation of oil really gained a foothold. The success of Edwin Drake actually marked the beginning of the petroleum industry. With innovation in the transportation system spurred on by the First World War, oil’s role as a source of fuel became one of the main reasons which makes it a highly sought after commodity around the world.

One of the main derivatives of petroleum is gasoline. This is one of the main fuels that is consumed in theUnited States. In 2007 alone, around 142 billion gallons was consumed. This translates to a daily consumption of about 390 million gallons per day. This also is represented as 61% of all energies used for transportation and 17% of all energies consumed in theUnited States. On top of this, petroleum and its refined products are also used in the manufacturing industries as a raw material. Petroleum is also a key ingredient used in some medicines, plastics industry, food industry, the manufacture of paints, construction industries as well as the clothing industry. It is also a key source of fuel for the generation of electricity.

Our modern suburban way of life, and physical organization of the world’s cities is all due to the existence of cheap supply of petroleum. Also, developing countries aim to exploit their natural oil reserves to earn foreign exchange reserves to pay for imports for their mushrooming populations. However, during the last few decades, the global availability of oil is gradually declining. Its cost is also exploding. Many economic experts are predicting that oil will probably not be a common commodity in the next fifty years.

The aim of this guide is to explain why oil prices fluctuate widely even though the supply of it is steadily declining. One way we go about learning how oil prices are determined is to explore its historical trend and prices. Another way how we will explore the mystery of oil prices fluctuations is to understand economic theory explaining oil price patterns. The third way we can seek to understand oil prices fluctuations is to look through its demand and supply side.

Once we have managed to reconcile all the different conclusions will we be able to have a better understanding of oil price fluctuations and the circumstances surrounding these fluctuations.

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