Oil and gas are commodities that are essential for the economy of every country.
The history of oil and gas can be traced back to the 19th century. However, it wasn’t until the 20th century that oil was used commonly in homes for heating and cooking.
At the same time, the gas industry didn’t start until later years because people at that time were more concerned about oil production than natural gas.
Oil companies soon realized that if they built pipelines between towns where oil wells existed then their product could be shipped further distances on land rather than on railroads or on ships.
This not only increased sales but it also reduced costs significantly.
The worldwide demand for energy today is vast because developed countries are willing to pay high prices for energy sources due to higher living standards compared with developing nations which are lower priced compared with developed nations.
At the same time, developed nations are pushing for higher standards of living by increasing the standards and consumer prices.
This increased demand has led to an increase in oil and gas prices and also a return to America’s dependence on foreign countries for energy resources which is why developing nations have been abusing their advantage over other nations by charging high gas prices.
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In order to meet this growing demand, it’s necessary that alternative energy resources be introduced into our global economy. This will create a balance between supply and demand as well as provide people with cheaper gasoline so they can save more money or spend it elsewhere.
Oil still plays an important role as a source of energy for cars, airplanes or boats. It is also an essential raw material for the chemical industry.
Oil production has been growing by less than 2% a year since 2004, while oil demand increases on average about 4% a year. This means that there is now a huge oversupply of oil on the market.
The price of Brent Crude Oil was more than $100/barrel in mid-2014 and has now dropped to below $40/barrel around New Year 2015-2016.
In September 2014 OPEC decided not to cut production even if it meant losing market share to non-OPEC countries which would have led to lower prices. In fact, Arabia is trying everything they can to avoid a collapse in oil prices as it would have a huge negative impact on the economy of their countries.
Their prices have been increasing lately, which has a negative effect on countries that import oil since it becomes more expensive.
The main factors that affect the price of oil & gas are as follows:
1) Production Capacity
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Oil production is determined by how much supply a country is able to offer. Some countries have a weak production capacity or it can be affected by political issues that prevent them from producing as much as they want, which leads to an increase in prices.
2) Weather
Oil & gas extraction is affected by bad weather. An unstable climate leads to fewer oil and gas supplies, which pushes prices up.
3) Geopolitics
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The stability of the Middle East affects the price of oil because this region has a strong impact on global supply and demand. Oil prices go up when countries such as Libya experience instability and lower their production, which causes supply reduction. This leads to a decrease in supply and an increase in prices globally. On the other hand, if there is stability in North America, Europe or Asia then it means that there will be more exports coming from these places causing a drop in oil prices since there will be more supply available for other countries.
4) Geographical Location
The location of the oil reserves also affects its price. For example, if a country has oil reserves in the desert and it needs to be able to transport this oil to different countries then there will be an increase in costs due to the expenses that come with transporting this oil via highways or pipelines The longer it takes for a certain type of oil or gas to reach its destination, the higher the cost is going to be due to transportation fees and other related expenses such as taxes.
5) Maintenance
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Increasing prices may also result from maintaining current production levels by replacing equipment that’s outdated or worn-out. The process of looking for new equipment can take time which leads up to a decrease in production capacity and an increase in prices.
6) Speculation
There is often a difference between the expected price of oil and its actual price on the market. During times of uncertainty, many people tend to use oil as a speculative asset leading to changes in demand from one day to another. Problems such as terrorism or natural disasters may cause a decrease in supply due to countries being locked out of certain regions which can lead to an increase in prices just based on speculations that there will be a shortage once these problems are resolved.
These are some of the main factors that affect the price of oil & gas globally, affecting both importers and exporters across borders. It is unclear how long this trend will last but it is definitely something that companies need to be aware of in order to avoid risks that may harm their business.
Future of oil prices
The future of oil prices is unclear since there are many factors that may lead to an increase or decrease in the global price of oil. Experts at energytracker.asia believe that if new technologies allow for better extraction methods then it will cause the price of oil to go down while others fear that further instability in some regions such as North Africa and the Middle East will have a negative effect on the price of oil. What is certain is that oil prices are likely to continue increasing until there’s an increase in production capacity or a decrease in demand, which can affect any country that imports or exports this type of product.
