Crude oil is the most important resource in the world. Without oil, the other resources that we enjoy would not be available at large scale.
As a result, countries with huge oil reserves are some of the most successful. Take Norway as an example. This is a country of about 6 million people but it has a sovereign wealth fund of more than $1 trillion and a GDP per capita of more than $70,000. The GDP per capita for United States is $57,000.
The biggest oil producers have formed an organization known as Organization of Petroleum Exporting Countries (OPEC). Other countries like Norway, Russia, and United States are not members.
A few years ago, when crude oil was trading at more than $130, the OPEC countries felt threatened by the United States, which had discovered hydraulic fracturing. Using the new technology, the country would move from being energy dependent to energy independent.
To limit the expansion of the Americans, OPEC decided to bring down the price of crude oil by increasing supplies. By this, they expected American companies to exit the business altogether because the cost of exploring and mining would be prohibitive.
By doing this, OPEC member countries miscalculated on the impact it would have. See, United States has the most diversified economy in the world. These economies range from technology, to manufacturing, to financials. Therefore, if the oil and gas companies failed, the economy would still be okay. They also underestimated the improvement of the new technology and the cost implications.
On the other hand, most OPEC members depend solely on crude oil. More than 70% of revenues from Saudi Arabia and Nigeria come from crude oil. As a result, when the price of crude oil plunged, these countries were the most affected. United States remained stable and the cost of drilling plunged.
In the past two years, the price of crude oil has more than doubled with WTI and Brent trading at three-year highs. The rise came as OPEC and non-OPEC members like Russia agreed on measures to limit production.
