Oil: From Underground Resource to Global Market

Petroleum is a naturally occurring mixture of hydrocarbons formed over millions of years from ancient organic matter buried beneath layers of sediment. Heat, pressure and geological processes gradually transform this material into oil and natural gas.

Not all crude oil is the same. Its density, composition and quality vary depending on where it is found.

The history of petroleum began long before modern drilling. Ancient people discovered natural oil and bitumen seeping to the Earth's surface.

In Mesopotamia, bitumen was used to waterproof boats, protect buildings and bind construction materials. Different civilizations also used petroleum products for lighting and other practical purposes.

During the nineteenth century, oil extraction and refining began to develop rapidly. Kerosene became an important source of lighting fuel, creating a growing commercial market for petroleum.

Refineries separated crude oil into different products. Gasoline initially had a much smaller role than it does today.

The development of the internal combustion engine transformed the future of petroleum.

Gasoline-powered automobiles began to develop in the late nineteenth century. The introduction of the Ford Model T in 1908 and the expansion of mass production helped make cars accessible to a much wider population.

Gasoline, once a relatively less valuable refinery product, became one of the most important fuels of the modern world.

As transportation expanded, demand for petroleum grew. Cars, trucks, ships, aircraft, agricultural machinery and industrial facilities increasingly depended on petroleum products.

Oil also became essential to the production of plastics, chemicals and many other industrial materials.

Oil was traded long before it became a financial market instrument. However, the development of organized futures markets created a new era.

WTI crude oil futures began trading in 1983, followed by Brent crude oil futures in 1988. These contracts allowed producers, refiners and investors to manage or take positions on future price movements.

No single country or company determines the global price of oil. Supply, demand, production decisions, inventories, geopolitical events, sanctions and economic expectations all influence the market.

Petroleum began as a natural material used to solve everyday problems. Technology transformed it into a major source of energy, industry and transportation. Global trade and financial markets eventually made it one of the world's most closely watched commodities.

To understand oil prices, looking at the chart is not enough. We must also understand the history, technology, economics and geopolitics behind it.