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An Intuitive Editorial on Crude Oil

By: Albert Stephenson

I penned this Editorial because I want much more for you than just mindless content about Crude Oil. With any luck you'll find some useful principles to make the most of. At the very least please read this article to inform yourself on the subject.

Crude Oil is commonly used for processing into gasoline and is in high demand, particularly in the United States and China. The chronicle of Crude Oil is a lot more gripping. I beleive the whole story can leave someone only demanding more questions.

With all the publicity today surrounding the price of Crude Oil, I decided to write an informative article on the background of the so-called "Black Gold." I'll briefly go over history, environmental effects, pricing and the future of the thick black sludge that is coveted by every major economy in the world. Hopefully you can gain a better perspective on the subject.

The history of Crude Oil is too vast to discuss in this brief editorial so I will limit it to a general overview. The first oil wells were drilled in China in the 4th century. They where as much as 243 meters deep and were drilled using bits attached to bamboo poles. The modern history of petroleum began in 1846, with the discovery of the process of refining kerosene from coal by Atlantic Canada's Abraham Pineo Gesner. The first rock oil mine was built in Bobrka, Poland the following year. These discoveries rapidly spread around the world, and Meerzoeff built the first Russian refinery in the mature oil fields at Baku in 1861.

James Miller Williams in Oil Springs, Ontario, Canada in 1858, dug the first commercial oil well drilled in North America. The American petroleum industry began with Edwin Drake's discovery of oil in 1859, near Titusville, Pennsylvania. The industry grew slowly in the 1800s, driven by the demand for kerosene and oil lamps. It became a major national concern in the early part of the 20th century. With the introduction of the internal combustion engine came a demand that has largely sustained the industry to this day.

While we all need to get to work in some way or another, rarely does anyone consider the environmental effects of the fuel that powers my country's mode of transportation. Yes we know that the emissions from are cars, buses and trains have a green house effect on this country's delicate environment; but what about the rest of our ecology?

Oil extraction is costly and sometimes environmentally damaging, although Dr. John Hunt from the Woods Hole Oceanographic Institution pointed out in a 1981 paper that over 70% of the reserves in the world are associated with visible macroseepages, and many oil fields are found due to natural leaks. Offshore exploration and extraction of oil disturbs the surrounding marine environment. Extraction may involve dredging, which stirs up the seabed, killing the sea plants that marine creatures need to survive. Not to mention the typical Crude Oil and refined fuel spills from tanker ship accidents. All of these factors have damaged fragile ecosystems all over the world.

Petrroleum productions are priced like most comodoties: supply and demand. While this may sound simple; the actual start to finish process can be a lot more complex subject. References to oil prices are usually linked to the spot price of either WTI/Light Crude as traded on New York Mercantile Exchange (NYMEX). Priced by the barrel, Crude Oil is quickly becoming the most expensive commodity on the market (second only to Gold).

Oil pricing is highly dependent on both its grade and place. The vast majority of oil will not be traded on an exchange but on an over-the-counter basis, typically with reference to a standard crude oil grade that is quoted via a pricing agency such as Argus Media Ltd or Platts. It is often claimed that OPEC sets the oil price and the true cost of a barrel of oil is around $2, which is equivalent to the cost of extraction of a barrel in the Middle East. These estimates of costs ignore the cost of finding and developing oil reserves.

You can't talk about the future of oil without talking about the "Hubbert Peak" oil theory. This theory describes the long-term rate of production of conventional oil and other fuels. It assumes that oil reserves are not replenishable. It also predicts that future world oil production must inevitably reach a peak and then decline as these reserves are exhausted. Like every other theory of any importance it is highly controversial. "When will the Oil basically start to run ou?t" is the big question.

No matter how you look at it, our society needs to focus more efforts on either alternative fuels or more fuel efficient modes of transportation. While I'm sure that the oil won't run out in my life time I would like to think we can leave this world a better place for future generations.

In closing, I hope this article has given you a better understanding of the topic and made you a more informed consumer. So the next time your grumbling at the price of gas, at least you'll understand what your complaning about. If you would like to read more on the topic of Crude Oil, I have listed several quality resources at the end of this article.

Books about the petroleum industry:

James Howard Kunstler (2005). The Long Emergency: Surviving the Converging Catastrophes of the Twenty-first Century. Atlantic Monthly Press.

C.J. Campbell (2004). The Coming Oil Crisis.

Peter Odell (2004). Why Carbon Fuels Will Dominate the 21st Century's Global Energy Economy. Multi Science.

Amory B. Lovins (2004). Winning the Oil Endgame. Rocky Mountain Institute.

Vaclav Smil (2003). Energy at the Crossroads : Global Perspectives and Uncertainties. The MIT Press.

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