Crude World

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.

Note: The title Crude World was shamelessly stolen from a book of the same title by Peter Maass.