After my initial blog on M&A deals i decided to take a short break from finance and discuss a topic which resonates with a wider audience. I can’t think of any other issue or product than Crude oil or simply Oil. We learnt in school than water is the most important liquid for survival. I would add to this another liquid “Oil” which is the most important liquid for an economy’s survival.
So lets pause for a minute and think what makes it so critical for the economy.
Crude Oil and its forms are used as an important raw material in different spheres of life – starting from machines, transportation mediums, electricity generation to plastics & paints. It would be impossible to survive in a world with no oil. But nevertheless it would end one day no matter how much technological innovation man does.
We now know that Oil is very critical because of its use and the fact that its a finite resource. But is this all that makes the Oil so valuable as a resource in global scheme of things. The answer is a “NO”.
Oil is critical from global angle because its not equally distributed among the different countries of the world. The world can be safely divided into countries who produce Oil (Producers) and countries that consume Oil (Consumers).
The main producers being the OPEC block comprising of mostly Middle East countries, US, Russia etc. The main Consumers are US and giant emerging markets such as China and India. The price of crude oil as any other commodity is driven by the same old Supply – Demand theory.
In the next part i will focus on the factors driving crude prices and its impact on economy of both producer and consumer nations. I will also delve into the use of crude oil to settle scores.
Muses 