| Oil is a combustible red-brown colored oily fluid. Sometimes, oil is nearly black and even found lightly yellow green colored or even colorless oil. Oil has peculiar odor and occurs in sedimentary shell of the Earth; one of the most important of all the minerals.
Oil occupies leading place in global fuel and energy balance: Percentage of oil in total consumption of energy resources constitute 48%. In future, the percentage shall come down owing to increase in usage of atomic and similar energy types and also due to increase in recovery expenditure.
In connection with the fast development of chemical and petrochemical industries worldwide, consumption of oil increases not only with an aim to increase the manufacture of fuel and oils but also as a source of valuable raw materials for the production of synthetic rubbers and fibers, plastics, surfactants, washing means, plasticizing agents (softening agents), additives, coloring agents etc (more than 8% of worldwide recovery volume). Amongst the raw materials, obtained from oil, the following found vast usage in the production of above-specified items: Paraffin hydrocarbons – methane, ethane, propane, butanes, pentanes, hexanes and also high molecular (10-20 carbon atoms in a molecule); naphtenes – cyclohexane; aromatic hydrocarbons- benzene, toluene, xylene (xylol) and ethyl benzene; olefin and diene – ethylene, propylene, butadiene and acetylene. Exhaustion (depletion) of oil reserves, price hike and other reasons lead to intensive search for liquefied fuel substitutes.
Prices of oil, as in the case of other commodities, are determined by the supply-demand correlation. If supply drops, then prices increase till the demand matches with the supply. Peculiarity of oil is that in near-term perspective, the demand is less elastic: Increase in prices does not affect the demand. Car owner travels in a bus due to price hike on benzene. Therefore, even marginal dip in oil supply leads to sharp hike in prices.
In medium-term perspective (5-10yrs), the situation is however different. Price hike in oil compels the consumers to buy more economic cars and the companies have to invest money in the development of more economic engines. News buildings are being constructed with improved thermal insulation so that less fuel is consumed for heating. Thanks to this, reduction in oil extraction leads to price hike only in the first few years and later on, oil prices again drop.
In medium-term perspective (5-10yrs), demand continuously increases due to increase in the quantity of cars and similar techniques. Relatively recently, China and India are listed in the list of worldwide large-scale oil consumers. In 20th century, increase in oil demand was balanced by identifying new deposits, which allowed increased oil extraction. However, many consider that, oil deposits will be depleted in 21st century and disproportion between demand and supply of oil shall lead to drastic hike in oil prices leading to oil crisis. Some others consider that, oil crisis has already started and price hike in 2003 – 2005 yrs is an indication of crisis.
Thus, after suffering defeat in war of Judgment Day, in 1973 – 1974, Arab countries decided to reduce the oil extraction of 5 million barrels per day so as to “Punish” the western countries. Other countries could increase the recovery by 1 million barrels per day. Aggregate oil recovery reduced by 7% but the prices increased by 4 times. Oil prices maintained at higher value (even though the prices were not as high as during boycott) and in the middle of 1970s further push was given by Iranian Revolution and Iran-Iraq war. Prices reached at their peak in the beginning of 1980s. After this, according to the reasons, specified above, the prices started dipping. For several years, the prices dropped by three times. After invasion of Kuwait by Iraq in 1990, prices once again increased but quickly dipped since the other countries could easily increase the oil extraction. After defeat of Iraq in 1991, prices continued to drop and reached their minimum value ($ 11 for a barrel) in 1998, which with the consideration of inflation, corresponds to the value in the beginning of 1970s. In Russia, it lead to, in particular, to the collapse of oil industry and became one of the reasons for default.
Organization of Petroleum-Exporting Countries could come to an understanding to cease the oil recovery and oil prices touched $ 30 per barrel by the middle of 2000. From the end of 2003 to 2005 inclusive, new sharp price leap took place and it reached $70 per barrel in August and is maintained above $55. Some consider the reason for price hike is due to the invasion of Iraq by USA and according to the opinion of other’s, the price hike signifies the beginning of already expected oil crisis, when depleting deposits can not meet the ever increasing oil demand. |
The price of oil may reach $100 as early as next year unless OPEC members
unexpectedly increase production.
Higher oil prices mean higher revenues for energy producers like
Exxon Mobil Corp., and higher costs and more bankruptcies among the
airlines. US and other oil importing countries may expect accelerated
inflation and devaluation of currencies.
