To understand the problem one must understand why it is difficult to produce oil. Hydrocarbons make up oil that formed from animal and plant remains (diatoms) long ago. “Over millions of years, the remains of these animals and plants were covered by layers of sand, silt, and rock. Heat and pressure from these layers turned the remains into what we now call crude oil or petroleum. The word petroleum means rock oil or oil from the earth” (Source 2). Crude oil, either in gaseous or liquid form, is located in underground reservoirs. Through an arduous and environmentally invasive process, crude oil is extracted from deep underground and sent to a refinery. An oil refinery is where crude oil can be processed into petroleum products such as jet fuel and gasoline.
The main factor for rising oil prices are the supply cuts by Russia and the Organization of Petroleum Exporting Countries (OPEC). For example, Saudi Arabia has announced that it will continue its 1 million barrels per day through the end of the year. In fact, it was “recently estimated Saudi Arabia may need oil prices to be near $100 per barrel to finance Crown Prince Mohammed bin Salman’s ambitious government projects, such as building the $500 billion futuristic city of Neom” (Source 1). Joining Saudi Arabia, Russia also announced that it would cut down barrel production to 300k at the end of the year.
Russia and Saudi Arabia are one of the largest oil-producing countries in the world. The reduction of their production will cause a downturn in global supply. Less supply means increased price per barrel of oil.
On a global level, G7 nations, including Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, and the European Union, have placed a $60 per oil barrel price cap for all Russian oil. This was an act of opposition against Russia’s actions; the G7 seeks to reduce Russia’s oil profits with this price cap. However, there could be complications if the exports of oil from Russia start to drop drastically, as previously mentioned.
The future of oil is bleak “with some analysts predicting Brent crude could surpass $100/bbl soon” (Source 1). The unit “bbl” stands for “barrel of crude oil.” The US Energy Information Administration forecasts “higher crude oil prices in the second half of 2023 and into 2024… because of moderate but persistent inventory drawdowns. Inventory drawdowns take place when demand for a commodity is greater than the supply of that commodity.”
It is clear that oil, an essential resource needed to fuel the modern lifestyle, and its effects on the global economy make it play a part in global politics as well. Unfortunately, these high oil prices also incur damages on the average person’s wallet whenever they go out to fill up their gas or pay their monthly bills.
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