As the years have gone by, crude oil has continually played a vital role in the global economy. In the early days of finding oil, it was considered next to nothing, as the resources that were considered valuable were water and salt. That was the entire thought on crude oil up until 1847 when the first drilling of commercial oil was done in the peninsula, Azerbaijan. The petroleum industry of the United States was born 12 years later. After it was starting to become mainstream, the larger portion of its demand was for kerosene, oil lamps, and simple mechanisms. This lasted for a while up until 1901 when the first commercial well for oil was drilled in a site named Spindletop in the southeastern region of Texas. The production rate for this site was more than 100,000 barrels of oil daily, which was more than all the other oil-producing sites in the country combined. To some experts, that day in 1901 was the birth of the modern oil era as oil was already projected to become the primary source of fuel in the world by replacing coal.
The determination of oil prices.
Shortly after oil was discovered to have a series of by-products that were useful for a series of purposes. Oil quickly rose to become the most demanded product in the world as it was the principal source of energy for several regions. The demand has led to variations in the prices of oil all over the world, as investors are solely after facts about oil profit. As such, there are factors that come into play for the determination of those prices;
- The forces of demand and supply.
The concept of demand and supply is quite straightforward as it applies to virtually every part of the economy and its operation. In the concept, as the demand for the product increases, so does the price. And that is the opposite for when the supply is increased, the price will drop as there is already a large amount in circulation. However, the oil market does not operate on these simple economic principles. The futures market is the main determinant of oil prices. The futures market is filled with two types of buyers, which are the speculators and the hedgers. The speculators are more or fewer investors who have the sole aim of making a profit off of the market. The hedgers on the other hand require the oil for the smooth operation of their business.
Price cycle of oil.
From a historical point of view, there appears to have been around a 29-year cycle in charge of governing the behavior of oil changes in general. Ever since oil started to rise in the 1900s to become one of the most demanded commodities in the world, the major peak periods of its indexes were within the same 1900 century.
Market forces that impact oil.
Oil is a naturally occurring element, however, it is not available everywhere in the world which is what its scarcity is made up of. 13 countries make up a group called OPEC. These countries are major oil-producing countries and as such considered the biggest influencers of oil prices in the world. These counties, by virtue of their stakes in the resource can affect prices, for instance if there is civil unrest in one of the locations, this can lead to a level of increase in the process oil.
Unlike many other products in the world, the prices of oil are not solely determined by the forces of demand and supply or sentiments by the market on the physical use of oil. Other factor add up to the price variations including trends in the oil market. Presently, regardless of the amount it is sold for, oil will continually grow in demand as it is a need for the entire world.
