What does the future hold for the crude oil industry?

By rotide
Created 01/10/2021 - 15:58
Oil Drums.jpg

This versatile raw material is used in the production of majority of the essential fuels, that we rely on to keep the world moving. Crude oil is refined to produce the likes of gasoline, diesel and jet fuel, and comes in different grades including:

Light sweet oil is the most popular grade among traders because the cost to refine it is lower than the alternatives, making it a more efficient and financially effective option.

The oil market is also highly volatile. This means that any position opened is not without its risks, and prices can fluctuate dramatically in a short period of time. However, it is one of the largest commodity markets, and its liquidity provides investors with some attractive and potentially profitable opportunities.

The question is, however, with the emergence of greener energy alternatives and a global desire to diverge from fossil fuels as an energy source - what does the future hold for the crude oil industry?

A brief history of the oil industry

Let's first take a look at oil's history, in order to fully understand its future. The first commercial oil refinery was established in Baku in 1837, and is responsible for the modern oil industry that we're familiar with today. This refinery was used to distil oil into paraffin - a fuel that was used in lamps and heating. Baku was the leading producer of oil at the time, and just one of the region's oil fields would account for more than 90% of the world's total oil production.

Following a revolutionary charge of Baku, and the building a modern oil well in 1846 that was 21 metres deep, competitors emerged in Poland, Romania, Canada and the USA, developing their own commercial oil wells. Pennsylvania soon rose to the top, becoming the world's leading oil producer. As the demand for oil also soared, so too did prices - in 1861, a barrel cost $0.49 and this rose to $6.59 per barrel in 1865.

Oil and the pandemic

In modern times, the pandemic had a direct effect on the price of petroleum, which in turn, affected the prices of crude oil. This was triggered by the implementation of lockdowns across the world which prevented people from travelling, both nationally and internationally. Oil prices also plummeted in 2020 as a result of a price war between Russia and Saudi Arabia [1] over proposed oil production cuts, causing uncertainty among traders.

However, prices have begun to rise in 2021, and although this recovery was stunted by the emergence of the Delta variant of the virus, experts still hold an optimistic outlook with regards to the recovery of the oil market. This is driven by successful vaccine rollouts and a strong recovery in countries like China and the US. In fact, the International Energy Agency (IEA) forecasts that the demand for oil globally will reach pre-pandemic levels by the end of 2022.

The future of the crude oil industry

Of course, the future of the oil market on a whole is reliant upon numerous factors, and if you're involved in crude oil trading [2], you'll want to consider:

Environmental plans and sustainable energy replacements lie at the forefront of oil traders' minds. Restrictions have already been placed upon the refinement of oil in an attempt to tackle climate change, by reducing emissions. This means that refiners are now having to cut the levels of sulphur used in the production of many fuels. Although it is inevitable that the world will eventually have to completely replace fossil fuels [3] with sustainable energy sources in the future, this is a long-term action plan.

In the nearer future, crude oil should thrive and continue to be the most desirable oil in the market. Restrictions on the refinement of oil should see crude benefit, since it naturally has a lower sulphur content than other strains, and therefore releases fewer contaminants into the air when it is refined.

In the immediate future, crude oil should continue as the most popularly traded and refined strain of oil. However, climate change is one of the most pressing issues that the world faces today, and it's inevitable and vital that we will replace fossil fuels with more sustainable energy sources. Though this is likely to be a long-haul mission that will see oil be gradually phased-out over the next few decades, it could cause traders to diversify their portfolios in anticipation of the reduced desirability for the commodity in the future.



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