Just why is oil so valuable? The price at the pumps seems to go up every day, and most of us are resigned to the fact that the days of cheap and seemingly endless supplies of oil are over.

Much of the drilling for the world’s oil takes place in areas which are politically very unstable. Few people will forget the sight of the oil fields of Kuwait on fire during the first Gulf War. And now, many potentially oil rich areas in the Middle East and parts of Africa are just not considered to be long term reliable sources of oil, as the territories are fought over by warring factions.

Instability

Geographical instability is another important factor. Hurricane Katrina meant a loss of 1.4 million barrels of oil per day from the Gulf of Mexico fields, and many oil fields are in similarly vulnerable areas; whether from hurricane, tsunami or earthquake. With the uncertainly over global warming, many people feel it possible that events like Katrina, which threaten oil production, will become more common.  And when oil production is threatened, price inevitably goes up.

Have We Sucked Earth Dry?

And of course, there is also the belief that we have reached Peak Oil Production on earth – that the fossil oil deposits, which cannot be replenished in a short time frame, are getting smaller and smaller as they are exploited.. Equally, the search for oil goes on in ever more inhospitable environments. Drilling takes place in deeper water, colder climates, more remote locations, with consequent higher extraction costs.

Couple this with an ever increasing demand from growth economies like India, Malaysia, Korea, Russia and China, and it’s no surprise that oil is so valuable – and so has such a high price. Oil, as we know, is not just used to fill the tanks of our vehicles so we can drive to see Auntie Clara on Sunday afternoon. It produces electricity to power homes and factories, is vital in the manufacture of plastics, pharmaceuticals and chemical for agriculture – all huge users of oil – and has a thousand uses which most of us never think of.

Supply And Demand

Price as we know is dictated by supply and demand. There is a plentiful supply of salt in the world, and the demand per person stays pretty steady. After all you don’t eat lots more salt when you get a little extra income. However as people get a little richer, they do want more consumer goods, more airplane flights, and critically, more cars – all of which require all to make and use.

The simple demand and supply equation rules; there is going to be less oil reliably available, it will cost more to find and extract, and the things which oil is used for – both in direct consumption and manufacturing – are going to be in ever greater demand. And that is what makes oil so valuable.

This article was written by www.futuresforecasts.com a website that provides free chart forecasts for Oil, Gold and world stock markets. Check out the latest oil forecast here: http://www.futuresforecasts.com/crude-oil-futures.html

Article Sponsor