Modern market of energy and energy products are more competitive than ever before. Economic times have changed compelling companies to be more innovative and aggressive at the same time in utilization of energy resources. The crude oil market has faced more revolutions considering the fluctuation of oil prices in the international market. The reserves of oil all over the world are depleting with continued mining creating a major concern in the energy sector. With new technology, many companies in the oil market are deploying advanced methods of production and marketing in order to be realistic and competitive. Reducing the costs of production has become a major consideration for all companies in the energy sector (Masseron, 90). Without a sustainable energy conservation program, it is becoming more and more difficult to control the prices of crude oil and its products across the world. At a time when the global marketplace is exerting more pressures on companies to assimilate new methods of production to meet the growing demand for products, the prices of oil will be critical in determining the direction of growth in the energy sector.
The Impact of Climate Change
While the service industries and other sectors in secondary production of human products take advantage of the increasing population to maximize production and tap profits, companies in the primary production are struggling to accommodate the increasing challenges on the costs of production. The increased world population means that more demand is placed on production of energy. Oil products are major contributors of the total energy needs in the world. With more countries developing industries and the population increasing over the years, the demand for liquid oil products has more than doubled with time. Moreover, the demand for natural gas has also increased with time to enable the supplement the higher demand for energy in homes.
While this happens, in the energy sector, the increased production of crude oil and its products affects climate change and mainly increasing pollution rates. It is estimated that oil production companies contribute to approximately 1.3 million pounds of toxic air release, which is within the top 100 major air polluters in the world (Hamilton, 09). Following these pollution rates, legal requirements compel these companies to incur costs of servicing environmental stewardship. These costs are directly reflected in the prices of crude oil and its products.
Another external factor that remains a significant factor in determining the prices of crude oil is the geopolitical complexity of mining oil in different regions of the world. Different countries have strict policies on oil production and processing. Geo-political factors are part of any diplomatic agreements for multinational oil companies that operate globally (Hamilton, 09. The prices of oil are greatly influenced by the impact of decisions by political regimes within the concerned countries considering that the governments and individuals are major stakeholders of the energy sector. Moreover, political systems are part of the external environment in which oil-producing companies exist and they have a substantial influence in the decisions that are made. For most oil producing companies, coping with the geo-political aspects of the distinct settings in which it operates is a major hurdle. Many political situations affect global oil companies. For instance, the elemental factor behind the geo-political context in pricing of crude oil is the stance of the United States’ military on the political conflict in Syria. In addition, the political crisis in other oil producing regions in the Middle East and Northern Africa is contributing factor to the fluctuation of prices (Madhavan 12).
The impact of the Economy
The production and processing of oil is an industrial process at the heart of the economies of oil-producing countries. Most countries producing oil and oil products have expanded economies primarily because of their exploits in oil production, a massive contributor to their economic growth. However, continued mining of crude oil means diminishing reserves and thereby influencing the economy and subsequently the prices of oil and its products. In fact, it is estimated that the world oil depletion level stands at about 90 million barrels per day (Maass 09). This depletion level also follows a pattern in which high consumption regions have increased production levels, but relatively low depletion rates while low consumption regions have low production levels but high depletion levels. The United States and Canada are two of the major regions of high consumption. It is estimated that, by the year 2015, the demand for oil in the world will surpass its production (Madhavan 12). This means that oil producing companies will have to meet policy directives that will be set by governments and other stakeholders in order to stay in the market. The directives will influence the prices of oil and its products immensely. The world over today, there is a keen consideration that natural resources need to be conserved due to the rapid rate at which they are being explored.
As expounded above, the prices of crude oil and its products are influenced by three major factors: Global climate change and environmental stewardship; geopolitical complexities and Economic repercussions. Oil producing countries ought to address these issues in order to control the prices of oil.
Hamilton, James. “Understanding crude oil prices the energy.” journal, international association for energy economics vol. 30(2) (2009)
Maass, Peter. Crude world: the violent twilight of oil. Cambridge: Belknap Press, 2009
Madhavan, N. Understanding Oil Prices. Organization of the petroleum exporting countries. UAE, 2012
Masseron, Jean. Petroleum Economics. Englewood Cliffs, NJ: Prentice Hall, 1990.