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Global Commodities Series – Article 3

Introduction

Today, crude oil powers cars, trucks, airplanes, ships, factories and enormous parts of the global economy.

Countries build strategic oil reserves. Governments closely watch oil prices. Central banks, investors, airlines, automobile companies and manufacturing businesses all pay attention to the petroleum market.

But crude oil was not always this important.

For thousands of years, petroleum was simply a strange substance that occasionally seeped out of the ground. Ancient civilizations used natural bitumen for construction, waterproofing, medicine, lighting and other purposes, but nobody imagined that petroleum would eventually become one of the most important commodities in human history.

The transformation happened gradually.

The real revolution began during the 19th century, when advances in drilling, refining and transportation turned petroleum into a commercially valuable resource. The arrival of the automobile and internal-combustion engine then completely changed the industry’s future.

In this article, we will travel through the entire history of crude oil — from ancient civilizations to the modern petroleum industry.

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1. Petroleum Before the Oil Industry

The history of petroleum is much older than the modern oil industry.

People did not need drilling rigs to discover oil.

In some parts of the world, petroleum naturally reached the surface through cracks and geological formations. These locations became known as natural oil or bitumen seeps.

Ancient people could collect the material directly from the surface.

This naturally occurring petroleum was used for several purposes.

Ancient uses included:

• Waterproofing
• Construction
• Adhesives
• Caulking
• Lighting
• Medicine
• Lubrication
• Military applications

Ancient civilizations in Mesopotamia, including the Sumerians and Babylonians, knew about naturally occurring petroleum and bitumen. They used bitumen as a construction material and adhesive.

At this stage, however, petroleum was a local resource rather than a global industry.

2. Petroleum in Ancient Mesopotamia

Mesopotamia was one of the important early regions where humans made extensive use of naturally occurring petroleum.

The region had numerous natural bitumen deposits.

Bitumen could be used as a waterproofing and binding material.

Ancient builders used it in construction, while other petroleum products had practical applications.

This was fundamentally different from today’s petroleum industry.

There were:

• No modern drilling rigs
• No giant refineries
• No pipelines
• No oil tankers
• No global oil exchanges

Oil was simply collected where nature exposed it.

3. Oil and Natural Gas in Ancient China

China has an especially interesting place in petroleum history.

Ancient Chinese engineers developed techniques for drilling deep wells, particularly in areas where natural gas and brine were present.

Some historical accounts describe wells drilled using bamboo equipment, with drilling technology becoming increasingly sophisticated over centuries.

Natural gas was used to help evaporate brine for salt production.

This is an important historical lesson:

Humans understood and exploited underground energy resources long before the modern petroleum industry existed.

The technology, however, was not yet capable of creating a global oil economy.

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4. Petroleum in the Middle East and Persia

Petroleum and natural bitumen were also known in regions of the Middle East and Persia.

Natural oil seeps provided communities with petroleum that could be collected without modern drilling.

Over time, scholars and craftsmen learned more about processing petroleum.

Historical sources describe early chemical processing and distillation techniques in the Islamic world.

These developments were important because they demonstrated that crude petroleum could be transformed into different useful substances.

But petroleum still remained a relatively specialized resource.

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5. The Discovery of Distillation

One of the biggest developments in petroleum history was learning that crude oil could be separated into different components.

Crude oil contains many hydrocarbons with different physical properties.

When heated, these compounds separate according to their boiling points.

This eventually became the foundation of petroleum refining.

The importance of refining cannot be overstated.

Instead of simply collecting oil, humans could now transform crude petroleum into useful products.

This opened the door to commercial petroleum.

6. The 19th Century Changes Everything

The 1800s were the turning point.

Industrialization was rapidly changing the world.

Factories were expanding.

Cities were growing.

Transportation was improving.

Population was increasing.

And there was a growing demand for better sources of energy and lighting.

One particularly important product was kerosene.

Kerosene could be produced from petroleum and used in lamps.

This created a major commercial opportunity.

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7. Why Kerosene Was So Important

Before widespread electric lighting, people depended heavily on candles, whale oil and other fuels for illumination.

Whale oil was valuable but expensive, and growing demand created pressure for alternatives.

Kerosene offered a practical source of lighting fuel.

As refining technology improved, petroleum became increasingly attractive.

The demand for kerosene helped create the economic foundation for the modern petroleum industry.

This is an important point:

The early oil industry was not created primarily because people wanted gasoline for cars.

The automobile had not yet become a mass-market product.

Early petroleum demand was heavily driven by lighting and other applications.

8. The Birth of the Modern Oil Industry

The year 1859 is widely regarded as a major turning point in the history of the modern petroleum industry.

Edwin Drake successfully drilled an oil well near Titusville, Pennsylvania.

The well reached oil at a depth of roughly 69 feet.

What made this achievement important was not simply finding oil.

Petroleum had been known before Drake.

The breakthrough was demonstrating that people could systematically drill for oil rather than simply collect it from surface seeps.

The success triggered a major oil boom in Pennsylvania and helped establish the modern petroleum industry.

9. Edwin Drake and the 1859 Oil Well

Edwin Drake was hired by investors who believed petroleum could be commercially valuable.

Drake and his team faced repeated difficulties.

Drilling technology was still primitive compared with today’s standards.

Nevertheless, they continued drilling.

On August 27, 1859, the well struck oil.

The discovery demonstrated something revolutionary:

Oil could be deliberately found and extracted from underground formations.

This changed the economics of petroleum.

Instead of waiting for nature to expose oil at the surface, companies could search for underground reservoirs.

The Pennsylvania oil boom followed rapidly.

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10. The Pennsylvania Oil Boom

After Drake’s success, entrepreneurs, workers and investors rushed into the region.

New wells were drilled.

Oil production expanded.

Refineries appeared.

Transportation infrastructure developed.

Towns grew rapidly around oil-producing areas.

But the boom also created problems.

Production sometimes expanded faster than demand.

Oil prices could collapse.

Companies competed aggressively.

Speculation became common.

These characteristics would remain part of the petroleum industry throughout its history.

The oil market was already demonstrating something investors still see today:

Commodity prices can be extremely sensitive to changes in supply and demand.

11. Rockefeller and Standard Oil

As the petroleum industry expanded, another important figure emerged:

John D. Rockefeller.

Rockefeller and his associates built Standard Oil into one of the most powerful companies in the American petroleum industry.

Standard Oil focused heavily on refining, transportation, distribution and efficiency.

By integrating different parts of the petroleum business, the company became extraordinarily powerful.

The Library of Congress notes that Standard Oil, founded in 1870, eventually controlled close to 80% of the oil-products market in the United States.

Standard Oil’s dominance eventually attracted enormous political and regulatory attention.

In 1911, the U.S. Supreme Court ordered the company to be broken up under antitrust law.

The resulting companies included businesses that later became major names in the global energy industry.

12. Oil Spreads Beyond America

The petroleum revolution was not limited to the United States.

Oil development expanded across multiple regions.

Important petroleum-producing areas emerged in:

• Russia
• Romania
• Canada
• Venezuela
• Mexico
• Iran
• The Middle East
• Indonesia
• The United States

The industry was becoming international.

One particularly important oil-producing region was Baku, in present-day Azerbaijan.

Baku became one of the world’s major early petroleum centers.

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13. Oil in Canada

Canada also played an important role in early petroleum history.

Commercial oil production developed at Oil Springs in Ontario before Drake’s Pennsylvania well.

This is an important historical distinction.

The 1859 Drake well is widely remembered as the beginning of the modern U.S. petroleum industry, but commercial oil production in Canada had already developed at Oil Springs.

This shows that the petroleum industry did not emerge from one discovery alone.

It developed through several technological and commercial breakthroughs occurring across different regions.

14. The Automobile Changes Everything

The next major revolution came from the internal-combustion engine.

Early petroleum companies were primarily interested in kerosene.

Gasoline was not initially the star product.

In fact, gasoline was often treated as a relatively undesirable byproduct of refining.

Then automobiles became increasingly popular.

Suddenly gasoline had enormous value.

The development and mass production of automobiles transformed petroleum demand during the early 20th century.

This was one of the most important turning points in economic history.

Oil was no longer mainly about lighting.

It was becoming the fuel of transportation.

15. The Rise of the Automobile

The mass production of automobiles dramatically increased demand for gasoline.

Cars required:

• Gasoline
• Lubricants
• Rubber and petroleum-based materials
• Roads
• Refineries
• Fuel distribution networks

The automobile industry and petroleum industry began growing together.

This relationship became one of the defining economic partnerships of the 20th century.

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16. Oil and World War I

The strategic importance of petroleum became increasingly obvious during World War I.

Modern warfare required enormous quantities of fuel.

Armies used:

• Trucks
• Tanks
• Aircraft
• Ships
• Machinery

All required energy.

Oil therefore became a strategic military resource.

Governments began recognizing that access to reliable petroleum supplies could influence national security.

This helped elevate oil from a commercial commodity to a strategic geopolitical asset.

17. The Middle East Emerges as an Oil Power

The early 20th century brought major petroleum discoveries in the Middle East.

Countries such as:

• Iraq
• Iran
• Saudi Arabia
• Kuwait

eventually became central to the global oil industry.

The enormous reserves in the region fundamentally changed global energy geopolitics.

Saudi Arabia became particularly important after major discoveries, including the development of the giant Ghawar field in the 20th century.

The center of gravity of the petroleum industry was gradually becoming much more international.

18. World War II and the Strategic Importance of Oil

During World War II, petroleum became even more important.

Military vehicles, aircraft and naval fleets required enormous amounts of fuel.

Industrial production also depended heavily on energy.

Access to petroleum became a major strategic consideration.

The war demonstrated a simple principle:

Modern industrial warfare cannot function without reliable energy supplies.

That lesson continued to influence international politics long after the war ended.

19. The Birth of OPEC

By the middle of the 20th century, major oil-producing countries wanted greater control over their petroleum resources and greater influence over pricing and production decisions.

In 1960, several oil-producing nations created the Organization of the Petroleum Exporting Countries, better known as OPEC.

The organization initially included:

• Iran
• Iraq
• Kuwait
• Saudi Arabia
• Venezuela

OPEC’s emergence represented a major shift in the balance of power between oil-producing countries and international oil companies.

20. The 1970s Oil Shock

The 1970s demonstrated just how powerful oil could be.

In 1973, geopolitical conflict and an oil embargo involving Arab oil producers created a major disruption in petroleum supplies to some Western countries.

Oil prices rose sharply.

The consequences spread through the global economy.

Higher oil prices contributed to:

• Higher inflation
• Higher transportation costs
• Increased production costs
• Economic stress
• Energy shortages
• Changes in government energy policies

The oil shocks demonstrated that crude oil was not simply another commodity.

It could influence the entire global economy.

21. Oil and Inflation

Oil has a powerful connection with inflation.

Imagine crude oil prices rise sharply.

Higher oil prices increase the cost of:

• Transporting goods
• Manufacturing
• Shipping
• Aviation
• Agriculture
• Construction
• Logistics

Businesses may pass some of these increased costs to consumers.

Therefore, an oil-price shock can spread through an economy.

This is why economists, central banks and governments closely monitor crude oil prices.

22. The Oil Industry Becomes Global

By the late 20th century, the petroleum industry had become a massive global network.

The journey of oil could involve:

Oil field → pipeline → storage terminal → tanker → refinery → distribution network → petrol station

This created a truly international commodity market.

Oil could be produced in one country, refined in another and consumed thousands of kilometers away.

23. The Rise of Offshore Oil

As easily accessible oil fields became more developed, companies increasingly looked offshore.

Technological advances allowed drilling in deeper waters.

Offshore production eventually became an important part of global oil supply.

Modern offshore platforms can operate in extremely challenging environments involving:

• Deep water
• High pressure
• Strong waves
• Remote locations
• Complex engineering requirements

The technology required to extract offshore oil is vastly different from the simple drilling methods used in the 19th century.

24. The Shale Revolution

Another major transformation occurred in the United States through advances in horizontal drilling and hydraulic fracturing.

These technologies allowed producers to access oil and gas trapped in previously difficult-to-produce rock formations.

The resulting U.S. shale boom significantly increased American oil production and changed global energy markets.

It also demonstrated an important principle:

Technology can change the effective supply of a natural resource.

Oil is finite, but technological progress can make previously uneconomic resources commercially recoverable.

25. Oil Becomes a Financial Asset

Crude oil eventually became more than a physical commodity.

It also became a major financial market.

Today, oil is traded through:

• Spot markets
• Futures contracts
• Options
• Exchange-traded products
• Commodity funds
• Energy company stocks

This means oil prices are influenced not only by physical supply and demand but also by expectations about future production, consumption, inventories, interest rates, currencies and geopolitical developments.

26. Brent and WTI Become Major Benchmarks

Two names appear repeatedly whenever oil prices are discussed:

Brent Crude

and

West Texas Intermediate, or WTI.

These benchmarks help market participants understand crude oil pricing.

They are not simply “the price of all oil.”

Different grades of crude can trade at different prices depending on:

• Quality
• Location
• Transportation costs
• Refinery compatibility
• Supply and demand

We will study Brent and WTI in much greater detail later in this series.

27. Oil and the Modern World

Today, petroleum is deeply integrated into the global economy.

Oil is used not only for transportation fuel but also as a raw material for petrochemical products.

Petroleum-derived products are found in:

• Plastics
• Synthetic fibers
• Paints
• Solvents
• Lubricants
• Packaging
• Medical products
• Industrial chemicals
• Road construction materials

Therefore, even as countries transition toward cleaner energy, the petroleum industry remains connected to many parts of modern manufacturing.

28. The Energy Transition Begins

The 21st century introduced a new challenge for the petroleum industry.

Climate change concerns and technological advances have accelerated investment in:

• Solar energy
• Wind power
• Electric vehicles
• Battery storage
• Hydrogen
• Nuclear energy
• Energy efficiency

This raises an important question:

Will the world eventually stop depending on oil?

The answer is complicated.

Oil demand could change significantly as transportation becomes more electrified.

However, petroleum’s role in petrochemicals, aviation, shipping and other industrial applications means the transition is unlikely to be simple.

This will become a major topic later in our Crude Oil series.

29. Why Oil Still Matters in 2026

Even in 2026, crude oil remains strategically important.

The world continues to consume enormous quantities of petroleum products.

Oil prices influence:

• Inflation
• Transportation costs
• Airline profitability
• Chemical companies
• Paint companies
• Logistics businesses
• Government finances
• Currency markets
• Stock markets
• Household expenses

For an investor, understanding crude oil is therefore much more useful than simply knowing the price of petrol.

You need to understand the entire ecosystem.

30. The Evolution of Oil in One Timeline

Period	Major Development
Ancient world	Surface petroleum and bitumen used locally
Ancient China	Deep-well drilling and natural gas applications
18th–19th century	Improved petroleum processing
1850s	Kerosene creates major commercial demand
1859	Drake’s Pennsylvania well marks modern U.S. oil industry
Late 1800s	Oil production and refining expand
1870	Standard Oil founded
Early 1900s	Automobile revolution increases gasoline demand
World War I	Oil becomes a major strategic military resource
20th century	Middle East becomes a major oil-producing region
1960	OPEC established
1970s	Major global oil shocks
Late 20th century	Offshore exploration expands
2000s	Shale technologies transform U.S. production
21st century	Energy transition accelerates
2026	Oil remains a major global commodity while the energy system evolves

31. The Biggest Lesson from Oil History

The history of crude oil teaches us one extremely important investment lesson:

The value of a commodity depends not only on the commodity itself, but also on technology, demand, geopolitics and human behavior.

Kerosene once drove petroleum demand.

Then automobiles transformed the industry.

Later, aviation, petrochemicals and industrialization created additional demand.

Technology subsequently unlocked shale oil and offshore resources.

Today, electric vehicles and renewable energy are challenging some traditional sources of oil demand.

The oil industry has repeatedly changed throughout history.

And it will continue changing.

32. Key Takeaways

Crude oil has been known to humans for thousands of years, but the modern petroleum industry is relatively young.

The major turning points were:

1. Ancient discovery of natural petroleum
2. Early applications of bitumen
3. Development of petroleum distillation
4. Growing demand for kerosene
5. Edwin Drake’s 1859 oil well
6. Expansion of refining
7. Standard Oil and industrial consolidation
8. Rise of the automobile
9. Strategic importance during world wars
10. Major Middle Eastern discoveries
11. Formation of OPEC
12. Oil shocks of the 1970s
13. Offshore development
14. Shale revolution
15. Financialization of oil markets
16. Today’s energy transition

Together, these developments transformed petroleum from a naturally occurring substance into one of the most influential commodities in human history.