More than a century and a half after its discovery, oil continues to play an essential role in the global economy, despite fears that reliance on petroleum is fueling rapid climate change. Over the last decade, the price of oil has taken a roller coaster ride, usually in a cyclical pattern that is in sync with the global economy. A strong economy tends to increase the demand for oil and drive up the price, while a weak economy generally has the opposite effect.
As a rule of thumb, economists say a $10 decline in the price of a barrel of oil increases economic growth 0.2 to 0.3 percentage points, helping many businesses dependent on oil, like airlines and makers of plastics and fertilizers. But the opposite is true as well, and the surge in gas prices in early 2012 raised fears that it might damage the still-vulnerable economic recovery. But the price leveled out later in the year — perhaps in a reflection of slowing growth.
Overall, oil consumption has dropped more than 5 percent since 2005, while natural gas use has risen 10 percent.
While it remains the top source of energy, oil has fallen off its pedestal since the energy shocks of the 1970s and 1980s, which proved how reliant the developed world had become on petroleum products, and how vulnerable it was to shortfalls in supplies.
In 1973, oil accounted for 46 percent of the world’s total energy consumption; by 2005, its share had declined to 35 percent. But oil remains well ahead of other energy sources: coal meets 25 percent of the world’s energy needs; natural gas is next with a market share of 20 percent; and nuclear power meets 6 percent of the planet’s energy needs.
Besides price volatility, concerns about energy security, as well as the environment and the threat of global warming, have put oil’s position under pressure. There are also concerns about the effects of instability in the Arab world, as well as tensions between the United States and Iran.
The U.S.: Inching Toward Energy Independence
Across the United States, the oil and gas industry has been vastly increasing production, reversing two decades of decline. Using new technology and spurred by rising oil prices since the mid-2000s, the industry is extracting millions of barrels more a week, from the deepest waters of the Gulf of Mexico to the prairies of North Dakota.
In November 2012, a report by the International Energy Agency concluded that the United States would overtake Saudi Arabia as the world’s leading oil producer by about 2017 and become a net oil exporter by 2030.
Increased oil production, combined with new American policies to improve energy efficiency, means that the United States will become “all but self-sufficient” in meeting its energy needs in about two decades — a “dramatic reversal of the trend” in most developed countries, the report said.