It's easy to understand why oil is so important in our lives. Your parents couldn't drive their car unless it was filled with gasoline or petrol. The school bus couldn't make it to school without gasoline.
Gasoline is made from crude oil. Lubricating oil is also used to keep our automobile engines from getting too hot and to ensure that all moving parts of the machinery are kept in good working order.
In fact, our world would almost grind to a halt without oil. Factories would stop running. So would cars. Airplanes would be grounded. Tractors on the farm would sputter to a standstill and rust. And people's homes and offices, if heated by oil, would freeze in winter. Oil is used in many products. Here are just a few examples: farm fertilizers, plastic toys and other plastic goods, cosmetics, detergents, and nylon clothing. Even waxes for chewing gum are made from oil.
Because oil is so important, the whole world is affected by what happens to this vital commodity.
This past week an important oil meeting took place in Geneva, Switzerland. The meeting brought together 13 countries that belong to an organization set up to control the price of oil and to determine how much oil they should export around the world.
A group of countries that band together to control the price of a product by limiting its supply is known as a cartel (pronounced car-tell).
The oil cartel that met in Geneva is called OPEC. It stands for Organization of Petroleum Exporting Countries. Four of the 13 countries come from the oil-rich Persian Gulf. They are Saudi Arabia, the world's largest exporter of oil; Qatar; the United Arab Emirates; and Kuwait. The other nine members are Libya and Algeria in North Africa, Iran and Iraq in the Middle East, Nigeria and Gabon in West Africa, Indonesia in Asia, and Ecuador and Venezuela in Latin America.
Not all major oil-exporting countries belong to OPEC, however. Mexico, one of the world's biggest, is not a member. Nor are Britain and Norway.
It is true that while OPEC countries do not by any means produce all the world's oil, they have the ability to set the guidelines for world oil prices. This was certainly true 10 years ago, when OPEC increased oil prices four times. For many countries, especially the very poor countries that do not produce their own oil, this steep price increase caused great hardships. The same was true in 1979, when OPEC doubled the price.
One reason some nation's economies are now having a difficult time is that they have to pay huge oil bills. Much of what many countries earn from selling their goods abroad is taken up in paying the cost of imported oil.
Many of the oil producers that have been making millions or billions of dollars from the higher prices are now finding they are in trouble.
Demand for oil has dropped. There has been less need for oil because the economies of the world are in a slump. The high price of oil is partly to blame. And because of the steep oil price, many countries have decided to save oil by using less of it. Another way countries avoid the high oil price is to turn to other sources of fuel. Coal, for example.
The result is that today the world is awash with oil simply because the demand for it has gone down. This glut has caused prices to fall. Gasoline prices in the United States went down about 10 percent last year.
The drop in oil prices has naturally hurt the oil-producing countries. Mexico , Nigeria, and Venezuela, for example, now find they don't have nearly as much money as they had hoped. Thinking the price of oil would keep on going up, they set out on costly programs to expand their economies. When the oil revenues didn't come in so fast, they soon ran into severe money problems.
One big reason that Mexico has a debt of $60 billion is that it was counting so much on extra oil revenues that never arrived.
All this has caused confusion in OPEC, prompting last week's emergency meeting of OPEC members in Geneva. The goal of some members was to firm prices by reducing the amount of oil being produced. But the members couldn't agree on how this should be achieved, and in the end the meeting broke up.
Without any agreement at Geneva, the feeling is that oil prices may go even lower. That could make your parents' fuel bills cheaper. It will certainly help all those poor countries trying to pay such enormous oil bills. But it will be tough for oil producers like Nigeria and Mexico. They will have less money coming in to pay off their debts.