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Crude Oil is considered a commodity like corn or pork bottoms by investors in the world’s future markets. Its impact on the global economy and the political ramifications that go with it make it more accurate to put it in a category of its own.
The price of crude oil has been impacted by war and violence, and also political ambition, in a way that would be unthinkable with corn or pork. The major difference is that most commodities have alternate products that can replace them in times of shortages.
Oil is considered the life blood of the world, however, and the research and development of alternate sources to replace it has been slow to show much progress.
Recently a violent attack and kidnapping in Nigeria produced a rise in crude oil price, as fears of further curtailment of the production in that country led investors to anticipate less supply. This is an example of the volatile nature of this market.
From the formation of the Organization of Petroleum Exporting Countries (OPEC) in 1960, and the Yom Kippur War in 1974, the specter of an artificial oil shortage driving crude oil prices up motivated far reaching changes in oil use in an attempt to minimize the impact. It led to the development of automobiles that used less gas, and improved attention to insulation and conservation in most of the Western World.
When the crisis had passed and oil production geared up, people did not give up their more fuel efficient autos or pull the insulation out of their homes. Even the greediest among the members of the oil producing community realized that demand was going to always dictate price, and if they pushed those prices too high, demand would decrease. Crude oil prices, they realized, were important, but they were not a gun put to the head of the world.
Crude oil prices continue to slowly rise, but experts do not anticipate much increase in the coming year. Many forecasts even predict modest drops that should hold gasoline prices fairly stable. This has always been a volatile market though, and it is hard to predict natural disasters or political upheaval that might send the market spiraling out of control in either direction.
The oil producing countries that are wise will remember the story of the golden egg laying goose, and be careful not to kill it. There is a limit to how high prices can go before wide spread efforts are put into replacing oil with alternate fuel, and finding further ways to decrease our dependence on it.