Have you ever really considered why oil is such a big deal? In case you didn’t know, oil is much more than something that keeps your family car running, it is a key component in many of the things around your home right now.
Oil, What is it Good For?
To get to the origins of the importance of oil, we have to go back to the mid-1800s. Despite the role of the Middle-east in current oil discussions, everything started in the United States. In 1855, Benjamin Silliman wrote a report on Petroleum (Rock Oil) and speculated about many of the useful products that could be made from crude oil. However, since this was before electricity had been harnessed to produce light in the form of a bulb, one of the first applications would be the replacement of whale oil (extracted through the break down of whale blubber) in lamps.
In 1859, in Pennsylvania, the first oil well in the United States was drilled marking the birth of the commercialization of petroleum. In 1870, John D. Rockefeller founds Standard Oil, it would be the largest corporation in the country and by the end of the decade, they would be responsible for roughly 90 percent of the refining capacity in the U.S.
The 1870s and 1880s saw many German engineers (Nicolaus Otto, Karl Benz, and Gottieb Diamler) working to develop internal combustion engines that would come to replace steam and coal powered engines in many applications. But it was in France that these German engines were used to manufacture practical vehicles instead of simple prototypes.
Before the turn of the century, this idea had crossed the Atlantic and Ramsome Eli Olds developed the basic concept of the assembly line and started the Detroit area automobile industry. But entrepreneur Henry Ford would improve on Olds’ original ideas and incorporate the Ford Motor Company. Introduced in 1908, a Model T produced in Ford’s plant could be assembled in just 93 minutes.
By 1927, 15 million Model Ts had been manufactured. This made the automobile widely accessible to many Americans and drove the consumer demand for gasoline which is a byproduct of the petroleum refining process. During this timeframe, technological innovations in World War I led to ship engines being converted from steam to petroleum power, and the aviation industry was born powered by low-cost petroleum.
History of Oil
Watch the video below which explains the development of oil from its early days to its role in the geo-political climate of today. Pay particular attention to the political issues arising in the middle east in the period following World War 2. You will be able to see the basic process of refining, the effects of war and alliances on oil production and prices, and the role of oil in our global economy.
In 1951, new types of plastic were developed from petroleum. These plastics are responsible for many of the common plastic products found today such as milk jugs, carpeting, and housewares. One of the first uses for this cheap plastic was to make Wham-O hula hoops. Many economists believe that the explosion of cheap consumer goods like these is what powered the booming economy of the United States and helped us win the Cold War.
Issues in the 1970s
In 1972, during Richard Nixon’s presidency and the waning years of the Vietnam war, it was cheaper for the United States to import cheap oil from the middle east than it was to produce it ourselves. But in 1973, OPEC (The Organization of Petroleum Exporting Countries) refused to export their oil to countries that were allied with Israel in the wake of the Yom Kippur War. This is known as an oil embargo.
After decades of abundant supply and growing consumption, Americans now faced price hikes and fuel shortages, causing lines to form at gasoline stations around the country. Local, state, and national leaders called for measures to conserve energy, asking gas stations to close on Sundays and homeowners to refrain from putting up holiday lights on their houses.
In addition to conservation, these countries also began to look for alternative sources of energy (like nuclear, hydroelectric, and coal) and western oil companies began to drill heavily in new locations such as the North Sea (between England and Norway) and Alaska. Despite this embargo only lasting a little over a year, the impact was felt and the price of oil shot from $4 per barrel to $15 by the beginning of 1979.
In the Jimmy Carter years, during the Iranian revolution, oil production stopped and global supply lines were slowed causing the price of a barrel of oil to skyrocket to around $30. That means that during the 1970s oil prices increased by 1000%. That drastic inflation, declining production, and high unemployment in the U.S. led to the greatest economic crisis since the Great Depression.
1980s to Today
Due to the instability of the middle east into the 1980s and the increased production by non-OPEC countries the price dropped back down to around $10 a barrel. From this point on in history, the control of oil becomes a key guiding factor in military action. From the Gulf wars of the 90s to the American invasion of Iraq following 9/11 oil was a key motivator. Leading up to the financial crisis in 2008, Oil prices saw their highest peak rising to as high as $145 a barrel before sharply dropping again during the global recession.
Today, we are seeing a new crisis. With coronavirus grounding flights, docking cruise ships and limiting travel, we have seen the price of a barrel drop sharply from $63 a barrel in January of this year to an astonishing and historical negative price on April 20th when a barrel was $-37.63. That’s right, essentially oil producers were saying that they would be willing to pay people to take their oil because they had nowhere to put it. That situation has already reversed and at the time of writing, oil is trading at just under $20 a barrel.
Obviously, oil is going to rebound because we love it and use it for everything. Is our dependence on oil healthy? We haven’t even spoken about the environmental effects of the heavy usage of oil in the last 100 years. Current estimates say that we have about 50 years worth of oil left based upon our modern levels of consumption. With this information, what should we be pressing our world leaders to do? What can you do? I’d love to hear your thoughts below.
we should try to not depend on the oil so much we should try and find other ways of doing things. me personally unless I become an engineer I don’t thing I could do much. also its crazy how much oil production is killing the planet. also what is fracking is it oil drilling?
Fracking is an “unconventional” process. It finds regions where oil is trapped in small pockets and uses steam or other mechanisms to break the rocks causing that oil to come loose.
I agree. I think we should find other means of acquiring energy.
Definitely. Since we only have about 50 years left at the rate we are using it, we should definitely try to sustain it.
With all the prices going up because of the oil it must have been so chaotic. Almost everything’s prices would go up or down and would cause a lot of confusion.
Yeah, it went from $4 a barrel to $145 a barrel. That must have been chaotic.
I think it’s crazy how the price went up so high. From $4 to $145. That’s a huge jump.
We should be conservative about our natural resources, if we truly only have 50 years left of oil and depend on it heavily, then its time to look to another source of energy. This is why some car companies are trying to create electric cars, which is a much cleaner and environmentally friendly alternative, not to mention that we can keep making electricity while oil is a finite resource.
There are definitely good initiatives taking place concerning the limiting of oil usage.
But we then have to look at how our electricity is made. Many plants are still coal-based.
this is insane to think about… i mean what happens when we just run out? we really need to start learning to use other resources in moderation because the earth only has so much to give us. When are we going to give back? i cant believe we fought over some oil either that’s kind of immature. Sharing resources with people who need it more will always be the right thing to do.
This is one of those resources that industrializing nations really need. Until we figure out the next thing. I mean we were burning whale oil before petroleum was refined. Maybe you will figure out how to make cold fusion work.
There are a few places playing with making Algae into biofuel. It would clear up the oceans, which would lead to fish populations increasing, and it’s a renewable source of energy, so it would reduce the carbon footprint.
It’s Exxon that’s doing it. If you want to read more it’s here> https://corporate.exxonmobil.com/Research-and-innovation/Advanced-biofuels/Advanced-biofuels-and-algae-research
Nice. It’s good to see some of the big oil companies understanding that if they don’t diversify then they will eventually produce themselves out of business.
Yes, moderating our oil usage would be a wise decision to delay a crisis, but it won’t prevent a crisis. We’re still going to run out of oil eventually. We need to be searching for other sources of sustainable energy now before the situation gets really dire. Preparation is key.
I know lots of people have already said it, but I also think we should try to find other means of energy. If we rely on one thing for too long, then we become a bit vulnerable. If it’s taken away, we have a very large dilemma. We should invest in other means of energy that don’t cause pollution, which is a problem too. We can always try to limit oil consumption, too.
How did oil drop to a negative price? It seems like they should have more storage for something so precious. I wish I could have known about that. I would have bought 20 barrels of oil and just stored it out back like it was a stock. If I had bought 20 barrels, they would have payed me $752.60. I could have sold it today and made around $400! That’s a net profit of about $1100. How does tax work when you buy something for -$? Does the government collect anything?
Yea, me too seth! Getting money for oil and then selling it for more! The profit margin there is huge.
Like I said, that price was theoretical. It didn’t mean that they were filling up barrels of oil for people who drove up with a truck. It is just a way to show that production had outpaced usage and storage to the breaking point. Oil is a commodity that is traded on the stock exchange and like any stock it is subject to buying and selling frenzy at times. However going negative was not something that I thought I would ever see.
What are some of the biggest environmental effects of the heavy usage of oil in the last 100 years? If we only have about 50 years left of oil supply at the rate we are using it, shouldn’t we try our best to not use it as much? And find other ways to operate things other than by oil?
I never realized how much oil we use! And how little we have left! Once we run our of oil, sounds like we will also be running into some problems.
Those current oil supply levels are obviously estimates based on the current number of wells and excavation operations. We can reduce usage to make that stretch longer, and we can find more. Many people think that there may be large stores beneath Greenland and in the Arctic, but we haven’t tested that. However, it is not a renewable resource so statistically speaking we will run out some day. It might not be in your lifetime, but it will happen.
I thought is was really cool to learn about oil. I watched some videos in the past on it. I did learn a lot more today
thx for the lesson and the oil commercial kid looks like fake turner
I thing the discovery of oil in america was what really put America in the lead with the best economy. Natural rescorces are so important for and economy, and America has all of them
oil is really important especially now in day, so i guess it is a good thing to be learning about it now.