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Basics of Oil Industry

Updated on March 31, 2012

How oil production globalizes economic markets

Oil is a basic necessity which is raw material for any industrial or agricultural production, thus it being so important-it is the biggest driver for any economy. To ensure a stabilization of oil markets, a forum of OPEC (Organization of the Petroleum Exporting Countries) has been formed .It unites the petroleum policies of the member countries and ensures a regular supply to consumers, fair return for investors in the petroleum industry and an income for the oil producers .Oil is freely traded on across major commodity exchanges and lots of companies are involved in oil production like Shell,Exxon Mobil,BP etc. Production of oil impacts its price which is generally managed by OPEC. Less production of oil means less supply resulting in high price for this precious commodity. High selling price earns lot of foreign exchange for producing countries but affects the importers of oil adversely but the biggest decision maker in this remains the OPEC. Oil is one commodity whose price across the world remains the same impacting all the economic markets around the world because it is used widely in all agricultural and industrial processes and is in short a fuel for the economy.

BP Gulf disaster
BP Gulf disaster

Threats to the environment

Oil production/transportation activities can play a havoc with the lives of human,animals and marine life.Oil waste which is dumped in the sea or lakes can affect marine life badly and can cause several wildlife habitats to be lost.Furthermore,it also affects humans by the contamination of water and soil as it affects the livestock,vegetation and human health.Production pollution and oil spills and can cause certain species to become extint because of the various chemicals and toxic fumes which are released into the water and air.The recent oil spill by British Petroleum (BP) in the Gulf of Mexico in 2010 caused huge damage to marine,wildlife and to the tourism industry of the Gulf of Mexico.Besides the environmental damage,human lives were also lost in the explosion ans several were injured in the accident.

China exploring oil opportunities in Africa

China is the second largest consumer of oil in the world and have diminishing oil resources so as to support its industrial production and exports, People Republic of China needs a stable and secure supply of oil thus leading to China venturing in Africa to tie up with poorer countries with available oil resources at cheap rates. For instance, it is doing a lot of projects in collaboration with the Nigerian government.

Some nations don’t have internal capabilities, resources and funds to explore oil and setup production since it requires massive capital investment. However, in some countries the state directly and through its companies manages oil production as it is one of the biggest driver of foreign exchange revenues for the state and can also be used as a means of foreign policy tool.

The price and production of oil works in balance. The economic scenario of any commodity works when both demand and supply exist. In current economic scenario it is noted that OPEC countries work closely with major importers like USA and China in order to control both production as well as prices thus providing economic stability to both. With the prices of oil ranging around USD 110 per barrel (as on 23rd Jan 2012),OPEC regularly announces increase in production in order to support the economic recovery of the major economies of the world.


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