By Dalal Street Investment Journal (DSIJ)
Crude oil has evolved from a naturally occurring resource used in ancient times to a key driver of global economies. Major discoveries, industrial growth, and geopolitical events shaped its importance. Price shocks and crises highlighted its influence, while environmental concerns are now pushing a gradual shift toward cleaner and more sustainable energy sources worldwide.
In October 1973, Arab countries stopped exporting crude oil to nations that had supported Israel in the Arab-Israeli War. Within weeks, petrol queues stretched around city blocks, factories slowed down, and even the United States found itself in serious economic trouble. By the end of the embargo in March 1974, the price of oil had risen from around $3 per barrel to nearly $12 globally. It was one of the clearest demonstrations in modern history of just how dependent the world had become on a single resource.
But oil's story did not begin in the 1970s. It goes back thousands of years.
Crude oil forms over millions of years as organic material gets buried deep underground and slowly transforms under heat and pressure. In some places, this oil naturally seeps to the surface, and ancient people took notice.
The knowledge of oil is very old, crude oil had been found and used for medicinal and other purposes long before any drilling took place. In China, around 347 CE, workers drilled some of the earliest known oil wells, reaching depths of roughly 240 metres using tools built from bamboo. The oil they extracted burned easily, so they used it to generate heat for salt production. In 7th century Japan, people referred to oil as "burning water." By the 9th century, oil was naturally surfacing in parts of what is now Azerbaijan. In the 12th century, the explorer Marco Polo noted seeing oil flowing near Baku, on the Caspian Sea coast.
Despite all of this, oil had no large-scale commercial use for centuries.
Before oil became useful as a fuel, lighting after dark was genuinely difficult. By the 1700s, whale oil had become the dominant lighting fuel across much of the Western world. Large fleets hunted whales, and small processing factories rendered the blubber into oil used for lamps, perfumes, and lubricants.
Then, in 1846, a Canadian geologist introduced a revolutionary new lamp fuel. Abraham Gesner patented his improvement in kerosene burning fluids in 1854, realising the usefulness of kerosene as a cleaner-burning fuel in lamps to replace whale oil. It was cheaper, burned more cleanly, and worked well in lamps. Street lighting expanded in cities, and whale hunting began to decline.
The modern petroleum industry dates to 1859 in Titusville, Pennsylvania, where two key developments, the construction of the first still to refine crude oil into kerosene, and the drilling of the first oil well, guaranteed Pennsylvania's dominance as the centre of early oil production.
Edwin L. Drake travelled to Titusville in 1857 as an agent of the Seneca Oil Company of Connecticut. With the help of salt well driller William (Uncle Billy) Smith, Drake adapted salt well technology to drill for oil. On August 27, 1859, the Drake Well struck oil at 69½ feet, giving birth to an industry that has forever shaped the modern world.
Annual domestic output of crude swelled from 2,000 barrels in 1859 to 4,000,000 barrels in 1869 and 10,000,000 barrels in 1873. Within decades, production had spread across Texas and California, and by the early 1900s the United States had become the world's largest oil producer.
As demand rose globally, companies and governments began searching for oil beyond American borders. In 1908, a large deposit was discovered in Persia, present-day Iran, and British companies moved quickly to control production there. In 1938, oil was found in Saudi Arabia, permanently transforming the country's economy.
As more Middle Eastern countries became major producers, they began to feel that the profits from their own resources were flowing elsewhere. OPEC was created at the Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The organisation emphasised the inalienable right of all countries to exercise permanent sovereignty over their natural resources in the interest of their national development.
Prices surged during the 1973–74 Arab oil embargo and again after the 1979 Iranian Revolution, triggering the energy crises of the 1970s. Oil prices later collapsed in the mid-1980s as new production and conservation reduced demand.
WTI crude hit its all-time high of $147.27 per barrel in July 2008, then crashed to $32 by December during the global financial crisis.
In 2020, something unprecedented happened. On April 20, 2020, the May 2020 WTI crude oil futures contract settled at minus $37.63 per barrel, the first time in history that a major oil benchmark traded at a negative price. The cause was a combination of COVID-19 destroying global oil demand while OPEC and Russia were briefly embroiled in a price war that flooded markets with additional supply.
Era | Year / Period | Event | Description |
Ancient World | 347 CE | China’s early oil wells | Workers in China drilled wells up to 240 metres deep using bamboo tools, extracting oil to generate heat for salt production. |
7th century | “Burning water” in Japan | Japanese people referred to naturally seeping oil as “burning water,” using it in limited applications. | |
9th century | Oil surfaces in Azerbaijan | Oil was found naturally flowing to the surface near present-day Baku, on the Caspian Sea coast. | |
Pre-Industrial Era | 1700s | Whale oil dominates lighting | Whale oil became the primary fuel for lamps across the Western world. The US built a major industry around whaling fleets. |
1846 | Kerosene invented | Canadian geologist Abraham Gesner developed kerosene by albertite. It was cheaper and cleaner than whale oil and replaced it for lighting. | |
Birth of the Modern Oil Industry | 1859 | First commercial oil well – Titusville, Pennsylvania | Edwin Drake struck oil at 69.5 feet on August 27, launching the modern petroleum industry and the Pennsylvania oil rush. |
1908 | Oil discovered in Persia (Iran) | A major oil field was found in present-day Iran. British companies moved quickly to control production. | |
1938 | Oil found in Saudi Arabia | A large oil deposit transformed Saudi Arabia from a poor desert economy into one of the world’s wealthiest nations. | |
The Geopolitical Oil Age | 1960 | OPEC founded in Baghdad | Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela formed OPEC to control oil production and pricing. |
1973 | Arab oil embargo | OPEC imposed an oil embargo during the Yom Kippur War. Prices rose from ~$3 to ~$12 per barrel, causing global economic crises. | |
1979 | Iranian Revolution – second oil shock | Disruption in Iranian oil output pushed prices to around ~$35 per barrel and deepened a global recession. | |
2008 | All-time price high: $147/barrel | WTI crude reached $147.27 per barrel in July 2008, then dropped to $32 during the financial crisis. | |
2020 | Oil turns negative | Due to COVID-19 demand collapse, WTI crude traded at -$37.63 per barrel on April 20, the only time oil prices turned negative. |
Oil has enabled roads, factories, plastics, medicine, and aviation. But the extraction, refining, and burning of oil also causes significant environmental damage. These concerns are now driving a gradual shift toward renewable energy. Even countries whose economies have long depended on oil revenue are beginning to invest in alternatives, recognising that the era of unlimited cheap oil will not last forever.
SEBI Registered Research Analyst (INH000006396).
Founded in 1986, Dalal Street Investment Journal (DSIJ) brings decades of experience in India’s equity markets. DSIJ's research combines fundamental analysis with price action, guided by disciplined risk management and capital preservation. They follow a structured, data-driven approach designed to help investors and traders make informed decisions beyond short-term market noise.
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