Oil is one of the rare mineral commodities that sustain livelihoods, transportation and industrial processes across the world as one of the major sources of global energy. It is mainly produced by countries located astride ocean floors and also desserts, mostly Arab states in Africa, Asia, and some parts of Europe and Americas. In its crude form as a naturally occurring substance, it is found embedded in particular rocks on beneath the earth’s crust. It is from these crude oil that more refined petroleum products such as gas oil, naphtha, gasoline, kerosene, liquefied petroleum gas and petrol are obtained. From an economic point of view, oil as a commodity can be studied in terms of its supply, demand, market price and structure, purchasers, sellers and volume issues. This essay discusses the oil supply, demand, price, volumes, nature of oil market and factors that affect the oil industry supply and demand from a worldwide basis, particularly in reference to low income producers and suppliers such as Angola, Nigeria, and Ghana among others.
The Global Supply and Demand of Oil
Normally, the global oil supply depends on the forces prevailing in the world market and the role of bodies such as the OPEC that control the amount of oil that flows into the global market. Its supply is also affected by global political and socioeconomic stability, whereby when conflicts and civil strife rock the major oil producing nations, the global supply goes down. Further, the global demand for oil also has an impact on its supply. While the global supply of oil keeps on fluctuating, its demand is ever steady, given the variety of uses into which it can be put in different parts of the world. The major suppliers of oil in the world include Nigeria, Libya, United Arabs Emirates (UAE), Egypt, Angola, Iran, Pakistan and other countries in the Middle East such as the Saudi Arabia. The major purchasers or buyers of the global oil in are mainly industrial countries such as the US, Germany, France and Russia, though most of these countries, the US in particular, have begun initiatives towards oil sufficiency without much reliance on the Middle East.
According to the monthly oil market report by OPEC (2016), it is estimated that the global demand for oil is likely continue to grow, with the non-OECD nations contributing to the bulk of oil demand worldwide. However, the global supply of the commodity is expected to decline in the following years due to international oil companies announcing capex cuts, the decrease in active oil drilling rigs in Canada and the US, and the decline in previous oil fields in other parts of the world.
Global Oil Prices and Market
The worldwide prices of oil are rarely constant as it varies from one period or year to the other based on its availability and supply from the major producers. The major events that have shaped the nature of international oil prices over the years include the various civil wars and revolutions that have previously rocked many Arab countries in the Middle East in which various oil fields have gone up in flames and many oil rigs or tunnels made inaccessible by rebel groups. Others according to Carollo (2011) include the oil monopoly and the oil crisis in 1970s, the emergence of the free market oil economy and the new demand for environmentally clean or friendly oil products to combat climate change and global warming. This situation has in the recent past made it difficult for international oil companies to maintain supply thus leading to high oil prices. Moreover, according to a report by the International Energy Agency (2015), the global market and industry is now more concentrated than ever as more and more oil companies enter the oil market and more oil reserves being discovered in various parts of the world, pointing to a slightly brighter future in the oil industry. However, the international oil prices are projected to keep on fluctuating according to this report due to uncertain political situations in some of the oil producing OECD and OPEC countries coupled with terrorism threats. The concentration of the oil industry and market is however skewed in favor of the OECD countries more than the non-OECD and OPEC countries as indicated in this report. Krauss and Stravato (2016) argue that there has been a recovery of oil prices over the decades, with a barrel of oil now trading at between 90 to100$.
Factors Affecting the Oil Industry
According to Cate (2009), the global oil industry is affected by a number of factors such as tariff and non-tariff barriers, trade barriers such as subsidies and caps, import or export quotas and government policies. These factors mostly impact on the production volume or capacity, the amount oil exports and imports and the supply of oil. Additionally, the tariff barriers affect the world oil industry and market in that through them, the volume of oil and gas exports and imports in reduced thus destabilizing the oil market and affecting supply and prices. Subsidies on the other hand affect global oil market by effectively shielding local oil companies from the impacts of economic recessions and shortage in oil supply thus affecting other oil exporting countries and companies. Further, technological factors have also affected the oil market by reducing the costs of oil production and extraction or drilling through availability of sophisticated oil drilling technologies and machines. However, as Fayola and Genova, (2005) argue, this normally disadvantages the poorer nations in the Third World due to inability to acquire such technology. This therefore results in a situation whereby multinational oil companies from the rich OECD countries exploit these oil resources and repatriate profits leaving very little income from oil export to the host poor countries. It is also the poorer countries, mainly in Africa and Asia that are adversely affected by shifts in oil prices, volume and trade barriers imposed by the OECD and OPEC countries due to their strong global market power in the oil industry. Nigeria, as an epitome of this effect, is a major oil producer, but due to lack of advanced technology, corruption and global oil trade barriers, it still imports oil and the few oil refineries are owned by foreign multinational oil exploration firms (Alley, Asekomeh, Mobolaji, & Adeniran, 2014).
References
Alley, I., Asekomeh, A., Mobolaji, H., & Adeniran, Y. A. (2014). Oil price shocks and Nigerian economic growth. European Scientific Journal, 10(19), 375-390.
Carollo, S. (2011). Understanding oil prices: A guide to what drives the price of oil in today's markets. New York: Wiley.
Cate, R. v. (2009). The impact of international trade on less developed countries. Business Intelligence Journal, 2(1), 114-137.
Fayola, T., & Genova, A. (2005). The politics of the global oil industry: An introduction. Westport, Connecticut & London: Praeger.
International Energy Agency. (2015). Oil market report. Washington, DC. Retrieved May 17, 2016, from https://www.iea.org/oilmarketreport/
Krauss, C., & Stravato, M. (2016, May 16). Oil prices explained: Signs of a modest revival. The New York Times. Retrieved May 17, 2016, from http://www.nytimes.com/interactive/2016/business/energy-environment/oil-prices.html?_r=0
OPEC. (2016). OPEC monthly oil market report: Review and outlook of global demand. Vienna: Organization of the Petroleum Exporting Countries. Retrieved May 17, 2016, from www.opec.org/opec_web//MOMR%20February%202016.pdf
