The political factors that influence oil price and oil demand
Political factors across the world have clearly emerged to be among numerous factors that affect oil prices and demand. For instance, the Gulf War appeared as one of the political turmoil that the world has ever experienced and it affected the oil sector in several ways. In fact, the Gulf War resulted into increased oil demand in various republics. Since the demand for oil was exponentially growing, approximately 40,000 gallons of oil were used globally per second (Goodstein, 2008).
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However, the Gulf War and other political activities reduced the supply of oil. The resultant effect was that several persons were left demanding for oil given that the events reduced the accessibility to oil and oil proceeds, as well as increased the costs of oil. The fight over the regulation of oil prices and supply between the loyal oil producers greatly affected the charged price per barrel. While most OPEC countries strived to increase oil prices to fund the foreign debts as well as finance the armed forces and national requirements, countries namely Iran, Iraq, UAE, Kuwait, and Saudi Arabia aspired to maintain comparatively lower oil prices. The latter group was interested in securing the enduring markets for oil and oil products. From the differing interests, Oil Producing and Exporting Countries had to fight over oil price regulation and supply (Aleklett, 2012). The political battles and the Gulf War reduced the quantity of oil supplied, increased the prices charged per barrel, and significantly reduced the demand.
The third world oil producing states were in a position to authorize, and dictate the price and utilization of the oil resources owned. The control over this precious resource evidently affected the demand for oil causing the global major oil corporations’ to shift their interests in oil dealings. In fact, when political battles hit the major oil producers and markets, companies had to transfer their efforts in exploring oil and capital expenditure to non-OPEC expanses that seemed politically secure. The shift reduced the quantity of oil supplied, increased charged prices, and thus negatively affected the demand. To minimize oil shortages and reduce the high oil prices, Western states politically established substitute energy sources to cater for the increased oil demands. From the initiated renewable energy sources, the worldwide production of the OPEC’s shares in the market reduced from 54.0% to 30.0% (Siegel & Nelder, 2008). Thus, the intercession by Western nations ensured that oil producing and exporting countries had minimal influence to dictate the charged oil prices that accrued due to high demands.
The political cons of the Gulf War saw amendments, marketplace responses, and political events influence oil prices and demand. The oil costs augmented owing to the inception of the Iran–Iraq Warfare, as well as the Iranian revolt that curtailed the production of oil on a global scale. The wars resulted into inelastic short-run oil demand that in turn hard-pressed and increased oil costs. Besides, it was impossible to protract the permutation of price and oil usage that existed in early 1981. The US demand for oil reduced by more than forty percent that is, from 16.60 to 10.30 million barrels a day. Nearly 20.60 dollars for each barrel was considered necessary for the absorption of the daily 16.60 million barrels consumption in the U.S (Goodstein, 2008).
Furthermore, demand was pretentious as most oil customers in the United States necessitated extensive period to adjust to the variation in the charged oil prices. Indeed, fresh investments became necessary to curb the slow response to oil usage and the proportional variations in the utilization of oil and oil products. The other political factor that affected oil pricing was the fiscal 1980 short-run oil demand and price adjustments. The demands and adjustments pressed down the quantity and marketplace price for used oil as non-OPEC oil production reduced. Moreover, oil production from non-OPEC nations augmented as the decline in the short run demand was knowledgeable (Nakicenovic, 2012). OPEC’s daily oil production reduced by less than 50.0% of the overall capacity as it attempted to support the costs.
Thus, the immense political OPEC malfunction endeavored to shore up oil costs. The oil production surged since OPEC affiliates used intemperance inducements and cheating capabilities in oil allocations. The subsequent years saw this surge foster oil price sever while the short run demand showed inelasticity (Aleklett, 2012). Low demands compelled OPEC to turn back to the preceding oil costs levels, as it was incapable of adequately restraining oil production. The political influences on oil prices showed that the decline in demand responded to the plunging and mounting costs of oil.
How the first gulf War affected oil price and the introduction of renewable energy
The effects of Gulf War on oil prices became apparent given that they led to the introduction of renewable energy as demand increased. In fact, the price increment greatly augmented the drastic fall in oil demand such that only the wealthy could afford the charged prices. Nevertheless, the world populace resourcefulness will no longer surmount the superior bounds of physics and geology. Concerning the scale, rate, and, the extent at which fossil fuels are globally consumed, it will be difficult replacing them with the substitute energy sources. Even though the effects of Gulf War and other political events hacked oil prices forcing deviation from the popular sources to other alternatives, many consider such effects as false assumptions (Zucchetto, 2006). The politicians, business frontrunners, and the community believe that the depletion of oil accrues from technological advancements.
The world might be at risk of falling short of the gadgets needed to move ahead in the nonexistence of enough comfortable and inventive surpluses of fossil fuels. Actually, the effects of oil prices on demand during the Gulf War fostered the introduction of 8.0% nuclear energy, 2.70% hydro, 0.30% of geo, 2.80% biomass, 0.20% solar and wind, and 86.0% as alternative energy sources (Goodstein, 2008). The Gulf War and various political events hardly attempted to replace the liquid energy with the diminishing energy bases. The innate gas can hardly gratify the mounting power demands given that the supply currently shrinks.
Conversely, from the agricultural practices that are untenable, Ethanol cannot cater for extra costs, water, and soil damages. It will have insignificant consequence on oil pricing and demand since its subsidization fall under agribusiness boon. A trivial net energy is produced by solar energy as a substitute (Nakicenovic, 2012). The energy is still far from being a viable alternative source that can meet the global energy needs given that it has low progress rate in costs and efficiency. Scholars assert that roughly a century will pass before solar energy is established owing to its vast utilization in larger quantities during internationally produced iron. In addition, several people are delusional that hydrogen pervasiveness is on the brink of saving humankind from the prices of fuel augmented by the Gulf War and other political events. In reality, hydrogen energy cubicles can hardly be termed as power storeroom except being named power resource. Since hydrogen appears in form of a hydrocarbon, it will require feedstock and a lot of hydrocarbon energy to crack its ties (Zucchetto, 2006). As such, the hydrogen petroleum-cubicle economies can hardly stand-in for the fuel time.
The other copious oil substitute is Coal whose net energy profile is low when weighed against oil. During the replacement of the declining oil sources the rates of mining Coal has elevated, hence the inefficient process of converting coal into synthetic fuel. The political Wars on oil prices, and supply actually increased the demand for oil. Thus, the production of Coal acted as an alternative energy source though it is enormously destructive to the milieu. It proves dangerous since it releases greenhouse gases and radioactive materials in the atmosphere to cause cerebral injure to the infants (Siegel & Nelder, 2008). Correspondingly, there is need for superhot water to bathe the excavated usable oil from tar sands but this requires a lot of energy.
Power from the nuclear plants depends on the platform for fossil fuel when building, upholding, hauling out, as well as accomplishing nuclear fuels, hence it is costly. Having specific climax in production, Uranium is also a limited and uncommon energy source having double price from the year 2006. Without doubt, nuclear fusion is the type of energy required in the human race. The universe has been capable of operating the composite schemes because of the fossil fuels. Therefore, in spite of the effects of Gulf War and political activities on oil prices, the renewable fuels are actually irreconcilable. Subsequently, more than the available renewable energy is used to develop technology and fresh fuels than that obligated to access the plentiful inexpensive supply of the fossil fuels (Goodstein, 2008). Generally, this will definitely place the industrial oil venture in the outer business surface.
Whether oil production will peak or not in the next twenty years
Based on the oil production and extraction reports, it can be stated the oil has reached its zenith several times and will again reach its peak in the next twenty year. Thereafter, the production rate and oil extraction is predicted to enter a terminal decline. A good number of countries have hit the highest point in oil production that has taken between fifty and three hundred million years to structure. However, in span of one hundred and twenty five years, just about half of the entire worldwide oil reserves have been burnt so far. The IEA (International Energy Agency) stipulates that by the fiscal 2030, the U.S. might be the net oil exporter subsequent to its year 2020 aim of becoming the principal oil producer (Zucchetto, 2006). The prices of oil will remain high and this will be the central economic offensive subject internationally. For this reason, there will be no much puff up in the U.S. oil manufacture given the diminishing returns.
Besides, some energy experts state that oil in the world has reached its peak. These specialists ground their reasoning that globally, the production of oil apparently had reached the zenith long back in 2005. The other predictions of oil peak ranges between the next ten decades and not later than this century. Actually, predicting the exact remaining amounts of oil in the whole ground is not possible. Therefore, the consciousness of when oil will hit the highest point moments is proficient only through retrospect. Oil peak as a result becomes a legitimate meadow for investigation for energy manufacturers, geologists, engineers, and economists (Aleklett, 2012).
Aleklett, K 2012, Peeking at peak oil, Springer, New York City.
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Goodstein, E 2008, Economics and the environment, John Wiley and Sons, Hoboken, New Jersey.
Nakicenovic, N 2012, Global energy assessment: toWard a sustainable future, Cambridge University Press, London, UK.
Siegel, J & Nelder, C 2008, Investing in renewable energy: making money on green chip stocks, John Wiley & Sons, Hoboken, New Jersey.
Zucchetto, J 2006, Trends in oil supply and demand, potential for peaking of conventional oil production, and possible mitigation options: a summary report of the workshop, National Academies Press, Washington, D.C.