Oil 101

Book starts out with history of oil

Began in the US production was greater than demand because demand was largely for kerosene for lamps (to compete with and replace whale oil)

Rise of the automobile forever changed demand for oil

Discovery around the world

US companies and then regulatory groups determined stated prices of oil

Large oil producing countries, primarily in the Middle East, could produce extreme quantities, far larger than they themselves consume (this was only the case in the US very early on)

Such large scale of production and economic implications → highly politicized, led to conflict and economic shocks throughout conflict in Israel, Russia, Iraq, Iran, ...

Since ~ 2005, demand has outpaced supply → OPEC can have less control over pricing (but neither can anyone else)

Netback pricing: rather than going with fixed prices, base prices for a more opaque good (ex. crude oil in Azerbaijan) to a more transparent good (like unprocessed oil in the US, or even finished goods in the market like oil, jet fuel, ...)

With demand > supply, over the next decades, radical innovations in efficiency of (1) use, (2) production, or (3) alternatives will have to manifest to bridge this gap

Within OPEC itself (at times reaching %55 of global production, and always exporting more than each nation needed), it was difficult to keep cartel members to their promises

Distributing production quotas was a function of reserve capacity & population (plus negotiations). Thus, countries could inflate their discovered reserves to be budgeted more production, which led to all OPEC countries doing this, which made it nearly impossible to deduce how much oil each country actual had in their reserves