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Free «Oil» Essay Sample

Most of the oil comes to the earth’s surface in the form of liquid, and is referred to as crude oil, which is made of hydrocarbons and other compounds that are mainly yellow or black in color. The decomposition of organic matter forms crude oil, and is extracted from the earth. Oil may be in liquid form or as dark tar like a substance. In other parts of the world, oil is found in solid form, which is embedded in rocks and sand. The oil wealth is valuable in terms of value, and, in some instances, it is referred to as the ‘black gold’. In many countries, oil wealth has become a barrier to human life because it provoked conflicts related to sharing of resources. This trend is common in developing countries and especially in Africa where the natural resources are limited or there are no mechanisms of their equitable sharing.

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Fuel that is derived from oil finds its use in providing energy for airplane engines, trains, motor vehicles, factories, in generation of electricity and the heat for our homes. Tar, which is generated during oil production, is used in road construction. Generally, oil provides nearly half of the energy that is consumed in the world (U.S Government accounting office). The consumption of oil by industrialized countries is high; therefore, they are forced to import this important commodity from other countries, which has led to some countries using it as a political and economic weapon. These restrictions were prevalent in the 1970s, and it contributed to oil shortage in many countries, especially the developing ones despite they were not involved in international politics. The United States of America is a leading consumer of oil followed closely by China. This explains why these countries are involved in global politics because they are keen on protecting their oil sources from other competitors.  

Oil in its different forms is not a recent discovery; it is of modern significance in international politics, economy, and technology tied to the twentieth century when the internal combustion engine was discovered. More than four centuries ago, asphalt was used in ancient Babylon in the construction of towers and walls. Large amounts were located on the banks of river Issus, which is one of the tributaries of river Euphrates. The ancient Persian tablets show that oil was used for lighting and medical purposes in the upper classes of society.

The earliest known oil wells were found in China, where it was drilled to the depths of approximately 240 meters using bamboo poles with bits. This oil was then used to evaporate brine in the process of producing salt. In Japan, oil was referred to as the ‘burning water’ by the 7th century. The first streets of Baghdad were lined with tar, which was derived from the nearby oil fields. In the 9th century, kerosene was distilled from oil for lighting lamps. The term ’oil’ was first mentioned in the Americas in 1595, in reference to the Trinidad Pitch Lake.

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Benjamin Silliman became the first person to fractionate crude oil through distillation. The first commercial oil well is thought to be that of Edwin Drake, which was constructed in Titusville, Pennsylvania in 1859. Romania is the first country to have its oil output documented in international statistics as 275 tones. Until the 1950s, coal was still the leading fuel, but from then on, it has been overtaken by oil. The oil crises of the 1970 highlighted the concern that oil will at one point be depleted, but the following years saw increased production and low demand that resulted in an oil glut. The three leading countries in the production of oil are Saudi Arabia, Russia, and the United States. The Middle East contains eighty percent of the global accessible oil reserves. Venezuela is known to overshadow Saudi Arabia in terms of reserves due to bitumen reserves.

The physical properties of oil determine the type of conversion process that is used. Various types of crude oil differ in terms of viscosity and appearance from one oil well to another. These differences are in color, basic characteristics, smell, and quality. Although all types of crude oil are made of hydrocarbons, there are differences in properties, especially in their molecular structures. These variations determine the suitability for certain products and the outcomes.

Classification of crude oil is based on the American Petroleum Gravity (API) and viscosity. The properties may differ in terms of proportion of hydrocarbon elements and sulfur content because it is extracted from different geographical locations. An API index of twenty or low will lead to a heavy grading, while that of between 20 and 40.1 is graded as intermediate. An API index of forty and above is graded as light (Prichard 1). Crude oil with high levels of sulfur is referred to as ‘sour,’ while the one with low levels is known as ‘sweet’. Purity of crude oil is dependent on sulfur content because of its acidic nature.

Brend Blend is the main classification of crude, which is found in the North Sea. It has an API index of 38.3 degrees and a sulfur content of 0.37%. West Texas Intermediate (WTI), Dubai Crude, and OPEC Reference Bracket (ORB) are other standards of classification. WTI is mainly found in Texas and Mexico, while those of ORB deposits are found in Nigeria, Indonesia, Iraq, Saudi Arabia, and Algeria. Brend Crude and Brend Sweet Light Crude are other classifications of Brend Blend, and due to its low sulfur content, it is also appropriate for the production of gasoline and oil products (U.S Government Accounting Office).

 
 
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The Organization of Oil Exporting Countries (OPEC) was formed in 1965, and has its headquarters in Vienna. It is made of twelve countries namely: United Arab Emirates, Algeria, Angola, Venezuela, Libya, Iran, Kuwait, Qatar, Algeria, and Nigeria among others. One of its guiding principles is the determination of the best ways of safeguarding the interests of the organization and the individual members. Other functions of the organization include the determination of oil price, and the modernization of the oil market and the opening of Russia. Arab members of the organization alarmed the world during the Yom Kippur War by executing oil embargoes that caused the oil crisis of 1973. Statistics from 2010 showed that OPEC countries have seventy nine percent of crude oil reserves and forty four percent of the global crude oil production capacity (Prichard 1).

The price of crude oil is mainly quoted as spot price per barrel. A barrel is 159 liters. The price is a reference to Light Crude or WTI as trade in the New York Mercantile Exchange, or of Brend in the Intercontinental Exchange, which incorporates the International Petroleum Exchange. The price is dependent on its grade, which is determined using the API index and sulfur content. Oil demand is dependent on the global macroeconomic environment; high prices of oil have a negative impact on the global economy (U.S Government Accounting Office).

After the record peak of 2008 where oil traded for $145 per barrel, its global price decreased to $ 30.28 per barrel since the start of the global economic crisis. The price rotated between $ 35 and $ 82 in 2009, but in 2011, it increased to $ 100 per barrel raising concerns about the political upheaval in Egypt and other Arab countries (U.S Government Accounting Office). After OPEC stopped pricing oil in 1985, the industry experimented with netback pricing and then adopted a market-based pricing mechanism. This mechanism is widely accepted, and it remains the technique of pricing oil.

The International Energy Agency (IEA) predicts that oil prices may drop over the next five years due to the high oil production in North America and Iraq. The agency expects the price of crude oil to fall from the current $ 107 per barrel to $ 89 by 2017(The Guardian). The Eurozone debt crisis has dampened chances of economic growth, while China, which has been the main driver of the global economy, is showing signs of declining growth. Although Saudi Arabia is the leading producer of crude oil, the IEA predicts in its 2012 outlook that the United States will be the leading exporter of crude oil by 2017 and natural gas by 2020 (Prichard 1). This will have serious implications for the oil industry because currently the United States is the net importer of twenty percent of oil products. It will be a significant reversal of the current trend.

Many countries will pursue all possible means to acquire oil production or get access to oil. History has shown many examples of countries who have gone to war to defend their oil reserves. Oil has fueled many conflicts including the Second World War. This trend will most likely continue into the future until a suitable source of energy is discovered. One big disadvantage of oil is the negative impacts it has on the environment. Combustion of oil release hydrocarbons into the environment contributes to global warming. Oil exploration also has significant harmful effects on communities living near the wells as shown in the case of Ecuador.

   

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