Petroleum is the product of the remains of marine creatures such as plankton and algae which have accumulated on the ocean floors over hundreds of millions of years, explains IronFX.
Over time, without access to oxygen to burn these bio-materials back into carbon dioxide, and without other creatures to consume them and break them down, chemical changes occur, turning these remains into petroleum.
At first, the bio-materials, trapped in stone, usually turn into a wax-like material known as kerogen, which is a precedent for the raw state petroleum mined industrially from petroleum wells. Influenced by temperature and pressure, the kerogen undergoes chemical breakdown and its state changes, to gas or liquid. Both the liquid (which is petroleum) and the gas, called “natural gas” tend to seep through porous rock until they reach the impermeable ocean floor, where they tend to accumulate. After the drilling and pumping processes needed to get the petroleum from the earth’s depths, it undergoes a purification process.
Among the products obtained from petroleum are kerosene, gasoline, paraffin, asphalt and such.
The use of petroleum as a mobile, available source of energy which propels the absolute majority of vehicles cars, trucks, trains, ships and aircraft, and serves as the basis for many industrial chemicals, makes it one of the most important raw materials in the world, explains IronFX. Access to it was a significant factor in several military conflicts, including the First World War, the Second World War, and the Gulf War. Most of the petroleum sources in the world are found in the Middle East.
The petroleum in the Middle East is found significantly closer to land than it is in other regions in the world, ensuring lower production costs. This fact grants an economic advantage to Middle Eastern countries producing petroleum, as well as the ability to put significant economic pressure on other countries producing petroleum, and those that consume it.
Petroleum had used already in ancient times. The roots of the Middle East petroleum industry are found in the 8th century when Baghdad streets were paved in tar. In the 9th-century, petroleum deposits near Baku in Azerbaijan were used to make naphtha. In 1861 the first Russian refinery was built in the oil fields of Baku, where some 90% of the world petroleum output was manufactured, explains IronFX.
In 1955 coal was still the highest-quality fuel on earth, but slowly, petroleum began to replace it. Today, petroleum provides about 90 percent of the world’s fuel needs. The price of petroleum is influenced by many factors, among them, political crisis, growth or slow-down in economic development, weather, etc. These changes cause the petroleum market to be one of the most volatile in the world, and prices can change by an average of over 40% in a year.
Petroleum trade is also carried out by futures contracts, which are traded on several exchanges worldwide, amongst others, on the London Stock Exchange where Brent petroleum from The North Sea is traded, and on the NYMEX- the New York Stock Exchange – where Texas light sweet (WTI) is exchanged, states IronFX.
According to data from the US Office of Energy Efficiency and Renewable Energy, Venezuela, Saudi Arabia, Canada, and Iran are world leaders in petroleum reserves. Saudi Arabia, Russia, and the US are world leaders in petroleum production. Canada, Iraq, and Kuwait have significantly lower production capabilities than their global potential would allow. In contrast, countries like Russia, the US, Mexico, and China produce higher percentages than their global potential allows.
The US is the most prominent example of petroleum reserve use, as it has 1.7% of world petroleum reserves, yet produces 10.5% of world petroleum. By contrast, Canada is the most prominent example of a country that does not use its petroleum reserves. While it has 13.8% of the world’s petroleum reserves, it produces only 3.8% of the world’s petroleum, states IronFX.