Burning crude oil itself is of limited use. To extract the maximum value from crude, it first needs to be refined into petroleum products such as gasoline, or petrol. However, there are many other products that can be obtained when a barrel of crude oil is refined. These include liquefied petroleum gas (LPG), naphtha, kerosene, gas oil and fuel oil. Other useful products which are not fuels can also be manufactured by refining crude oil, such as lubricants and asphalt (used in paving roads). A range of sub-items like perfumes and insecticides are also ultimately derived from crude oil.

Furthermore, several of the products listed above which are derived from crude oil, such as naphtha, gasoil, LPG and ethane, can themselves be used as inputs or feedstocks in the production of petrochemicals. There are more than 4,000 different petrochemical products, but those which are considered as basic products include ethylene, propylene, butadiene, benzene, ammonia and methanol. The main groups of petrochemical end-products are plastics, synthetic fibres, synthetic rubbers, detergents and chemical fertilisers.

Considering the vast number of products that are derived from it, crude oil is a very versatile substance. Life as we know it today would be extremely difficult without crude oil and its by-products.

Is the economy really improving, therefore driving up consumption of oil? Tracking the share market will not give you the real answer. In fact, we know the global economy has yet to recover.

U.S. Dollar Drives Oil

Oil is priced in U.S. dollars. According to OPEC, the relationship between oil prices and the U.S. dollar is almost mechanical. When the U.S. dollar falls in value, oil prices have to go up in U.S. dollar terms to stay constant in euro terms. Oil producers receive their oil revenues in U.S. dollars and need to be compensated for the fluctuations of the dollar.

When oil price hit too high, consumers have to spend more for gasoline, petrol and etc despite that their income didn’t go up. That’s a high price to pay.

Russian energy giant Gazprom meanwhile forecast that soaring oil prices would “very soon” hit 250 dollars a barrel.

New York’s main oil futures contract, light sweet crude for August delivery, leapt to an all-time pinnacle of 145.85 dollars before a record close at 145.29 dollars, marking a gain of 1.72 dollars from a day earlier.

In London, Brent North Sea oil for August delivery surged to a lifetime peak of 146.69 dollars a barrel after breaching 146 dollars for the first time in earlier trading.

The contract subsequently settled up 1.82 dollars at 146.08 dollars,

“Prices rose to set new all-time highs … supported by a decline in US crude oil inventories,” said Barclays Capital analyst Kevin Norrish.

Oil prices, which have doubled in value over the past year, were driven higher by news earlier this week that American crude stockpiles fell by 2.0 million barrels to stand at 299.8 million barrels in the week ended June 27.

The US government’s Energy Information Administration had also revealed on Wednesday that crude inventories were 15.3 percent lower than at the same period a year ago.

“It was the first time inventory fell below the psychologically critical 300-million-barrel threshold since January,” said PetroMatrix analyst Olivier Jakob.

The latest record-breaking price surge also came after Iranian Oil Minister Gholam Hossein Nozari said that Iran would react fiercely to any military attack against the oil exporter.

The OPEC oil exporting group said on Thursday that it would be difficult to replace the crude output of Iran should the country face attack.

“If something happened in Iran, it is difficult to replace (Iran’s output of) 4.1 or 4.2 million barrels a day,” OPEC secretary general Abdallah el-Badri told the daily newsletter of the World Petroleum Congress in Madrid.

Speculation has mounted that Israel might be planning a military strike against Iran’s nuclear sites.

Iran has been locked in a five-year standoff with the West over its nuclear program. Iran claims it is for generating electricity while Western powers fear the development of nuclear weapons.

The oil market also found key support from the struggling US currency, which makes dollar-priced commodities like oil cheaper for foreign buyers and tends to encourage demand, analysts said.

“We expect that the price of oil will reach 250 dollars per barrel very soon,” Gazprom chief executive, Alexei Miller, told journalists Thursday on a visit to energy-rich Azerbaijan.

Miller also said he expected Russia’s oil production to level off in the next few years.

Analysts say one of the reasons for higher oil prices is that production is failing to catch up with growing global demand.

Russia is the world’s second-biggest producer and exporter of oil after Saudi Arabia.

Oil also rose on expectations the European Central Bank will likely raise interest rates at its next meeting on Thursday, a move that would help strengthen the euro against the dollar.

As the dollar has weakened, investors have been piling into oil contracts, betting that they will gain, thereby offsetting the dollar’s decline. Since the start of the year, crude has shot up nearly 50 percent.

Light, sweet crude for August delivery rose 35 cents to $140.35 a barrel in Asian electronic trading on the New York Mercantile Exchange, midday in Singapore.

On Monday, the contract soared to a record $143.67 a barrel. It later fell back to close at $140.00 on reports of weakening U.S. oil demand and end-of-the-quarter profit-taking by traders.