Developing countries refer to the nations that have not yet achieved the degree of industrialization that balances with their population and have low living standards for its citizens. Examples of developing countries include Nigeria, Republic of South Africa, Ghana, and Libya. Crude oil is one of the major commodities that countries in the world transact in. Such nations as Nigeria are key players in the trade, with them being developing states. Nigeria has been exporting crude oil to many parts of the world (US Energy Information Administration, 2021). The European states are the major markets for Nigerian crude oil by having 41% of total imports from that region (Bakirtas & Akpolat, 2020). The key trade partners for Nigeria’s crude oil business are India, Netherlands, Spain, Brazil, South Africa, and the US.
The other major exporter of crude oil in developing countries is Ghana which produces over five billion barrels. The country is ranked 25th globally with more than six trillion cubic feet of natural gas reserves (Reagan, 2018). The country has experienced complex issues in the oil industry with macroeconomic stability issues for enhancing current trends in energy (Reagan, 2018). The country has a 100% state-owned petroleum filling point company called Ghana Oil Company (Becky & Okwenze, 2021). Ghana is in the process of growing the economy through the energy sector.
Demand and Supply for Crude Oil in the World
Crude oil usage in the world has risen over a period because the world is changing with time. The global demand for crude oil with inclusion of biofuels as per the data in 2019 amounts to 100 million barrels per day; it is approximated to decline for the next two years to 91.3 million barrels daily (Reagan, 2018). The decrease will be due to the economic recession brought by the COVID-19 pandemic in the world (Becky & Okwenze, 2021). The reason would be due to widespread shutdowns across the entire globe. When the amount of quantity needed is compared with the last decade, it was about 86.4 million barrels per day (Bouri, 2019). The demand for the commodity increases with the rise in usage.
Supply of Crude Oil in the World
Venezuela is the leading supplier of crude oil globally, followed closely by Saudi Arabia. The country has over 300 billion barrels of certified reserves that takes about 18% of the global share (Bouri, 2019). The country has not been progressing on this matter recently due to political instability that has sanctioned the country’s economy (Bouri, 2019). Saudi Arabia and Canada follow the supplied crude oil metric in the world. The two countries are more developed than Nigeria, and, therefore, trade regulations need to be imposed so that developing countries such as Nigeria can get a share in the supply.
Price History of Crude Oil
From the history of crude oil trade since 1946, the pricing has changed gradually over the years due to the globalization effects and change in consumer buying trends in the world. That the changes in prices vary over time due to the economic issues and the demand for the commodity in various parts in the world. For example, in 2021, the difference is 31.5% annual change while in 2020 it was -20.64% (Bakirtas & Akpolat, 2020). It is expected that the prices will keep on changing as prevailing issues in market vary as well.
Market Structure of Crude Oil
A market structure in this case means the nature of competition for crude oil in the energy industry. The crude oil industry is considered a perfect example of an oligopolistic market model (Bouri, 2019). The reason is that there exist few countries with a maximum share in the market. The structure affects the developing countries for small crude oil producers such as Nigeria because there are many companies in the US, Canada, and Saudi Arabia (US Energy Information Administration, 2021). The entire issue would result in geopolitical tensions between the players of the market. In the oil sector, few companies have control over the trade.
Export business for the developing countries has been a key booster in the economy. Nigeria has been exporting over one million barrels of crude oil per day of crude oil products such as petroleum to the US (US Energy Information Administration, 2021). Therefore, the figure represents almost 9% of total crude oil products imported by the US and over 35% of Nigerian exports (US Energy Information Administration, 2021). Recently, Nigerian crude products have been termed as the substitute to the lost amount of crude oil from Libya hence adding their price premium on the global markets.
The crude oil industry is affected by tariff and non-tariff barriers because the domestic consumers pay taxes from imports rather than exports. The barriers make foreign products a bit expensive for the buyers. It is important to note that crude oil obtained from abroad may be cheaper in capital and labor costs (Bakirtas & Akpolat, 2020). For instance, Nigeria’s crude oil products are relatively important because they support national security, hence protectionism (US Energy Information Administration, 2021). Nigeria has employed tariffs such as licenses, export quotas, and local content requirements.
The regulation of global trade to ensure that there is monopoly in energy products distribution enables equality in boosting the revenues. For effective development, developed countries such as the US need to support the emerging states in ensuring market structure for crude oil export is balanced to accommodate the growing economies.
Bakirtas, T., & Akpolat, A. (2020). The relationship between crude oil exports, crude oil prices, and military expenditures in some OPEC countries. Resources Policy, 6(7), 2-9.
Becky, L., & Okwenze, R. (2021). Crude oil price, interest rate and unemployment nexus in Nigeria: An application of Toda and Yamamoto long-run causality procedure. Marketing and Branding Research, 4(7), 13-19.
Bouri, E. (2019). The effect of jumps in the crude oil market on major oil exporters’ sovereign risks. Risks, 7(4), 118.
Reagan, T. (2018). International crude oil trade, the year 2017. World Oil Trade, 40(1), 43-52.
US Energy Information Administration (2021). Nigeria exports of crude oil and petroleum products by destination.