describe the events in the oil market since Edwin drake started drilling oil for commercial purposes

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Abstract

The purpose of this report is to describe the events in the oil market since Edwin drake started drilling oil for commercial purposes up to the current times where it is estimated that the average American household sends about 9% of it average household on gasoline. The paper will also discuss the recommendations to reverse this trend such as use of electric cars, which use renewable and cheaper source of energy. In addition, the responsibility of America to help achieve peace in oil producing areas will reduce the prices of the commodity.

History of the oil market

The discovery of commercially viable oil wells by Edwin Drake in Pennsylvania in the mid 19th century saw the first significant rise in oil prices with price of one barrel of oil rising from 50 cents to $ 20.00 before the end of the year. This rise in price was pushed by the discovery that oil from these wells was a better illuminant than coal. Increase in production led the prices of fall by more than $19.90 within the following year. The first oil shock in the United States of America happened between 1862 and 1864 when the country engaged itself in a civil war and there was introduction of taxes on substitutes of oil such as turpentine and alcohol. After the civil war in 1865, the prices of almost all commodities fell and the number of well in Pennsylvania had increased, this forced this made the price of oil remain relatively low at 56 cents per barrel.

In the early 20th century, the use of oil products started shifting from dominantly illuminant purposes to being as a source of power in industries, rails and automobiles. The west coast gasoline shortage of 1920, which affected the western coast, was the first oil shock that faced the country after the shift in the use of oil, however, this shortage was neutralised by increase in oil from other states such as Oakland, Texas and Oklahoma.

The period after World War II, the prices of oil in America remained relatively stable due to government that had been introduced to control price fluctuation and wastage of the resource. Texas Railroad Corporation, which was responsible for regulating oil prices in Texas, would predict demand based on the prevailing market prices and then set the production levels in line with the demand levels. After the world war, there was an increased uptake of automobiles in the country, this increased the demand for oil and the prices had increased by 80 per cent between 1947 and 1949. In the early 1950’s the Korean war, nationalization of Iran’s oil industry and the protest of oil workers in the united states led to shortages in the commodity which led to rationing. The prices did not rise as they had been frozen after the start of the Korean War; however, after the price controls were removed, the price of oil rose by up to 10 per cent.

The last decade of the 20th century has seen a large number of developing countries transitioning from agricultural economies to industrialized ones; this has led to increase in demand for oil to power these industries. For instance, China has a compounded annual growth rate demand for petroleum at 6.3 per cent since 1998; this led to modest increase in global prices for oil. In the early 21st century, the gross world product grew at a rate of 4.7 per cent, this was not followed by an equal or higher growth in supply for oil as production only grew by 3 per cent. The pressure on oil supply led to the consistent increase in prices during that period

Recommendations

America has for centuries been highly dependent on oil to run its industries and for fuelling motor vehicles, with the changing global climate due to the carbon that is contained in the petroleum products such as oil. This makes it necessary to look for alternative ways to reduce the dependency in oil especially in the motor vehicle industry, which is the largest consumer of oil in the United States of America, which stands at 43% of the total oil consumption in the United States.

One of the solutions to cushion American on high oil prices it to encourage use of electric cars that are designed to use electricity stored in batteries that are rechargeable, instead of running using the conventional gasoline fuels. The car has been designed like the normal car in external appearance and handling and the difference is in the engine and its performance of various functions (Anderson and Anderson, 05).

With the current trends in the world where most of the nations of the world are turning towards ‘green energy’ America has a responsibility to lead the transition for the better of the country’s interests. The developing countries energy consumption is on the rise and projected to increase by up to 53 per cent by the year 2035, this in essence will see the prices of oil and other fossil fuels rise all over the globe and economies being run on petroleum products will not be sustainable in the end. To avert such a crisis in America, embracing electric cars would be a great step in cushioning the economy against shocks in the global oil markets.

Diversification in the sources of energy is among the priorities that the government should put in place as it moves towards cheaper and more efficient sources of energy, such as solar and wind power to power its industries. With introduction of electric cars in the market, demand for renewable sources of energy would rise which the government is targeting to be a major driver of the economy, this would reduce overreliance on one form of energy which is not healthy for a large economy like the United States of America.

The price changes in oil are largely as a result of the political instability in Middle East and northern parts of Africa. United States should therefore work with international bodies such as the UN to help achieve and maintain peace in these areas, as that will translate to increased oil production and therefore stable prices.

Conclusion

The history of oil prices in America has been that of instability with prices increasing due to various prevailing factors at any one time and then falling; a trend that has continued to modern times. In order to avoid these fluctuations government adoption of electric cars that use electricity as a source of energy and maintaining peace in oil producing countries would be the best solutions

Works cited

Anderson, Curtis D, and Anderson, Judy. Electric and Hybrid Cars: A History. Jefferson, N.C: McFarland, 2005. Print.