About half of the price of every gallon of gas over the last decade has been determined by crude oil prices. The average price of one gallon of gasoline as of February 2021 was $2.50. Approximately 50 percent of that was crude oil prices.
When gas prices increase, it affects how goods are shipped, how people travel, and how the general population create their budgets. If there is an increase in the price of goods – because there is an increase in the prices of its components – people would have to make tough choices on what to purchase. For instance, a rise in the cost of heating would mean that people need to decide if they can or cannot afford to turn up their thermostats.
One major contributing factor to these changes in prices is the price of oil. As the world’s most essential natural resource, oil affects people’s spending choices and naturally impacts people’s everyday lives.
But what is crude oil? It is a natural liquid fuel composed of a mixture of hydrocarbons. Crude oil is found underground and is extracted by means of drilling. It has the appearance of a thick, tar-like substance or a highly viscous liquid. Its color can range from black, dark brown, or yellow.
Crude oil is one of the most widely-used fuel sources worldwide and is a base component used for heating, transportation, electricity generation, plastics, and a wide variety of petroleum products. The United States, which has the world’s largest gross domestic product, consumes the most oil than any other country. In fact, America uses approximately 25 percent of the estimated 80 million barrels of oil produced on a global scale.
Over the past few years, the rising demand for oil, coupled with the growing energy needs of nations such as Brazil and India, has been a contributing factor in the increase in oil prices. Similar to the majority of things that people purchase, the supply and demand affect the prices of oil.
The impact of OPEC on oil
The Organization of Petroleum Exporting Countries (OPEC) is an organization composed of 12 oil-producing countries and has a great impact on the price of oil worldwide. Founded in 1960, these nations formed an alliance to manipulate and regulate the price per barrel, which is largely dependent on how many barrels per day the cartel will sell on the world oil market.
The major oil-producing countries not in OPEC include the United States, Russia, and Canada. Hence, U.S. is less dependent on OPEC oil.
Oil as one of the world’s most essential commodities
Oil is the lifeblood of industrialized countries and is considered the world’s most important energy source. Because of this, countries that control the majority of the world’s supply are able to exercise enormous power over the availability of oil.
The oil supply in the world market affects its price, and the price fluctuations are passed on to consumers. The ease and quality of oil refining also determine oil prices. For instance, a better-quality oil, like light crude produces higher-quality diesel fuel and is easier to refine. The denser and heavier the oil is, the more difficult it is to transport.
The location of extraction also affects oil prices. Crude oil that is derived near the coast is simpler to transport. On the other hand, oil that is extracted further inland needs to be moved with the use of pipeline systems to reach the refineries, and ultimately, to the coast for it to be made available globally.
A better understanding of how oil is supplied and produced in all its forms will help you deal with and understand how it impacts today’s prices. The oil and gas industry is the engine of the world’s economy, and with it comes the potential for high returns for serious, qualified investors.
Through direct participation programs, DW Energy Group offers promising oil and gas investment opportunities. To find out more about how we can help you achieve your investment goals, we encourage you to get in touch.
Sources:
“Factors affecting gasoline prices,” EIA, https://www.eia.gov/energyexplained/gasoline/factors-affecting-gasoline-prices.php
“Gross domestic product,” Britannica, https://www.britannica.com/topic/gross-domestic-product
“How much of the crude oil produced in the United States is consumed in the United States?,” EIA, https://www.eia.gov/tools/faqs/faq.php?id=268&t=6
“Annual Statistics Bulletin,” OPEC, https://www.opec.org/opec_web/en/