...INDEPTH: OIL The price of oil - in context CBC News Online | April 18, 2006 Oil is sold in barrels - it's the same unit of measure used to sell whisky. A barrel of oil - or whisky - contains 159 litres. The price of a barrel of oil has been testing new highs since it pushed through $50 a barrel in September 2004 - and pushed gasoline prices well beyond $1 a litre in the summer of 2005. But how high are prices like that, historically speaking? Turns out these records may not be records, after all. Oil prices were stable for most of the 100 years before 1973 at well under $5 a barrel. Expressed in today's dollars (all figures in U.S. dollars), the price was closer to $10 a barrel, hitting highs of about $15 and lows close to $8. Even as the world economy boomed in the decades following the Second World War, prices remained fairly stable. That's mainly because the United States held most of the clout in the oil industry - and the U.S. government regulated the price of oil. From 1958 to 1970, prices were stable at about $3 per barrel, but in real terms the price of crude oil declined from above $15 to below $12 per barrel. The decline in the price of crude when adjusted for inflation was further exacerbated in 1971 and 1972 by the weakness of the U.S. dollar. But by the early 1970s, that changed. The Organization of Petroleum Exporting Countries had become a force and in 1973, the first major oil shock hit the world as Arab nations refused to sell to countries that...
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...Oil Prices and the U.S Trade Deficit Along with the financial industry, chemical industry and entertainment industry, the energy industry is one of the top markets in the United States with oil production as one of its core essentials. Since the beginning of 2002, oil prices have almost quadrupled overtime. The United States is estimated to be the number one country of oil consumption therefore making the soaring prices one of the major concerns within the country. Although the amount of U.S imports and exports have varied overtime, recently the U.S has been running trade deficits. With the price of oil increasing, an oil-importing country like the U.S will have a substantial increase in the cost of petroleum imports therefore suggesting the deterioration of their trading deficit will be even greater. In this study, Michele Cavallo examines the changes of oil prices and how they affect a number of different factors. These factors include the slow-paced growth in oil production creating has an increase in demand which has outpaced the increase in supply. Cavallo explores the relationship between the surge in oil prices and trade, how the U.S trade deficit evolves in response to higher oil prices and furthermore creates a model that helps explain how the import of oil, despite the increase in price, remained constant and what affect it has on the trade deficit. Using data from January 2002 to July 2006 for overall trade balance and the petroleum trade balance, Cavallo...
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...OUTLINE Introduction A. What effects can produce oil prices increase? a. Brief history and evolution in oil markets b. Causes of the increment in oil prices B. Colombia on the two sides of oil prices rise effects c. Brief description of effects d. Brief history of petroleum industry Body I. International context a. Global situation of oil prices b. Volatility and Dutch disease II. Colombia Case c. analysis of effects in the macroeconomic view: inflation and currency appreciation Conclusion A. Which are the solutions to control the harmful effects of oil prices increase B. What strategies are implementing in Colombia to deal with the effects of oil prices increase. Thesis statement Since the 1970s the world hadn`t experienced an oil increase like the one that is happening these days where many countries are concerned about the effects that this phenomenon can bring to their economies. As an oil exporting country, Colombia has to deal with a lot of challenge in order to transform all the revenues from petroleum into benefits to their society. However there are some effects that can bring some instability to this small economy, especially the one that international markets create a speculative bubble which can end in the Dutch disease. ‘The Dutch disease is a major market failure originating in the existence of cheap and abundant natural or human resources that keep the currency of a country overvalued...
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...The Oil Ministers of 12 member states of Organization of the Petroleum Exporting Countries (OPEC) concluded their meeting in Vienna on November 27 by deciding to continue with their three-year-old production quota of 30 million barrels per day (mbpd). Thus, they calculatingly ignored nearly one mbpd oversupply in the global oil market which has pushed the crude prices down by over 30 per cent since June 2014. The global oil glut, in turn, has been caused by a number of factors which include OPEC’s own overproduction, rising non-OPEC production (particularly by the U.S.-based “Shale Revolutionaries”) and lower demand from China and Europe. By declining to cut their output to shore up the prices, OPEC in general, and Saudi Arabia in particular, have refused to play the role of global “swing producer.” As most factors responsible for the current global demand-supply disequilibrium are systemic in nature, the world faces prospects for relatively bearish oil prices over the foreseeable future. Indeed, the prices have continued to fall with the Indian basket touching $72.51/barrel on November 27 — a decline of nearly $9 from the average during the first fortnight of the month. As the world’s fourth largest importer of crude, India can afford to exult at this precipitous crude price decline. Still, given the strategic importance of this development, a more comprehensive analysis is desirable. A virtuous cycle in the economy From the limited perspective of India’s consumer economy...
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...Oil and Gas 2 There are many issues that cause the cost of oil and gas to increase. The main contributing issue to the increasing cost of oil and gas is supply and demand, when demand is greater than supply, the price of oil and gas will increase. The factors that affect supply include increased demand, problems with refineries and pipelines, and disruption to supply or threat of disruption to supply. With the increased demand for oil in the United States and other countries such as India and China; the extra demand for oil has put enormous pressure on available oil reserves. The Energy Information Administration stated, “If refinery or pipeline and/or reductions in imports cause supplies to decline unexpectedly, gasoline inventories (stocks) may drop rapidly. This may cause wholesalers to bid higher for available supply over concern that future supplies may not be adequate” (Energy Information Administration, 2008, para. 9). With this in mind, the other underlying factors that affect supply are disruption to supply or threat of disruption to supply along with The Organization of Petroleum Exporting Countries (OPEC). The Organization of Petroleum Exporting Countries is an organization of oil producing countries which produces over 40% of the world’s crude oil and has two-thirds of the world’s oil reserves. This organization was formed in 1960 to regulate the supply of oil and to some extent, the price of oil. The organization includes Algeria, Indonesia...
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...Oil and Gas Prices Darlene Dant COM 150 In August 2006 the American national average for a gallon of gas was $3.09. Gas prices hit an all time high in July 2008 with a national average of $4.12 per gallon. By December 2008 the national average for a gallon of gas was a mere $1.61 (GasBuddy, 2009). Due to the affect that supply and demand has in combination with state and federal taxes, America has seen significant fluctuations in gas prices. As people say, “What goes up must come down” and, in the oil and gas industry the opposite is also true, “What goes down must come up”. Fuel costs are affected by the world’s oil supply. The Organization of the Petroleum Exporting Countries (OPEC) consists of 12 members from various countries, who are the main suppliers of the world’s oil (OPEC, 2009). According to the Energy Information Administration (EIA [2009]), America gets the majority of its oil from five countries: Canada, Venezuela, Mexico, and Saudi Arabia. There are different grades, or qualities, of crude oil. Two of the most popular grades are: light-sweet crude oil (better grade) and heavy-sour crude oil (lesser grade). Depending on where the oil is coming from, it may be of a better, or lesser, grade compared to that of another country. The most desirable crude oil is light-sweet crude oil. While easily obtained in the past, light-sweet crude oil is becoming less available, causing an increase in price (Wagner, 2008). While light-sweet crude oil may have...
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...Written Assignment: Falling Oil Prices On the graph I constructed above, I demonstrate how the effects of production and other countries, have impacted the prices of oil to drastically fall from an equilibrium price and quantity of $99.00 a barrel to the low cost of $49.00. My determinants include, the decrease in production costs, China’s recession, the U.S. becoming one of the top oil producers worldwide, and finally the increase of alternative energy efficient vehicles. Over the last couple of years, many new discoveries and technological advances have all led to the decrease in production costs of oil. With that being said the supply of oil has gone up and prices are decreasing rapidly. One source talks about new drilling techniques that are opening up fields of oil in the western United States that used to be out of our reach. All of the companies investing their money into these technological advances expect to achieve an increase in production by at least twenty percent (Fahey, Jonathan.) Another big contributor to the vast drop of prices is China’s recession. The crash of their market has created a chain of impact worldwide. Oil is what keeps the economy going and China being one of the biggest oil consumers was what kept the economy afloat (Carr, Michael.) Now with their recession going on, we are impacted because of the value of the dollar going down and decrease in demand. In similar news, the prices of oil drop are also due to the U.S. becoming one...
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...How Oil Prices are Established Did you realize that at our current consumption of crude oil and at our current status of known reserves, we have approximately 40 years of reserves remaining? This is a startling fact when we take into account all the products that are produced from refined crude oil or from its by-products. Many people are aware of the price increases they feel at the gas pump, but has anyone ever considered the cost or investment put forth in finding new reserves? Under the right conditions, oil would sometimes seep up to the surface, but in our times, the search for new reserves is more costly and dangerous. When considering how the price of crude oil and its by-products are determined, one must first look at the quantities available and the amount required by its users. Crude oil by itself is not a valuable product. The products that are refined from crude oil are where the value lies. Crude oil is refined down into such products as gasoline, diesel fuel, jet fuel, propane and various flammable gasses, perfumes and insecticides. Some refined products from crude oil are also used as feed stocks in the production of other products like animal feed, plastics and other household items. With the expanding economies of various countries like China and Russia (Brown and Virmani 2007), the demand for these products has risen dramatically over the past four to five years. Many nations classified as third world countries are also increasing their need. Unfortunately...
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...Research Proposal Impact of Oil Price Fluctuation on the Macro Economy Von Lamey Eastern New Mexico University December 3, 2013 Table of Contents Introduction……………………………………………………………………3 Review of Literature…………………………………………………………..5 Theory…………………………………………………………………………15 Application…………………………………………………………………….18 Summary & Conclusion……………………………………………………….20 Tables…………………………………………………………………………..22 Bibliography……………………………………………………………………24 1. Introduction Oil price fluctuations have affected the people and economies of the U.S. for most of the twentieth century. The commodity has seen minor changes and major fluctuations during this period. Major price changes within a short timeframe are called shocks. The research I propose will attempt to answer the question: What is the impact of changing oil prices on the macro economy of a country? Research has demonstrated oil price fluctuations do impact economies as well as supply of and demand for the commodity. This influence on macroeconomic activity generated symmetric movement between price and many macroeconomic indices in the 1970's. However, after 1982, macroeconomic indices did not demonstrate the same proclivity to react to oil price movement. Information spreads almost instantly with the emergence of the internet. This expedient movement of news has led to an evolving trend of speculation which may or may not be beneficial to commodity pricing. One may infer that the recent prevalence...
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...Oil price: traders and CEO’s clash over recovery prospects OBJECTİVES *What is the OPEC and it’s main goals? *Why are oil prices falling? *Who are the winners and who are the loosers? *Consequences of falling prices. *Important comments about oil price. What is the OPEC and it’s main goals? Organization of the Petroleum Exporting Countries (OPEC), a permanent, international organization headquartered in Vienna, Austria, was established in Baghdad, Iraq on 10–14 September 1960.Its mandate is to "coordinate and unify the petroleum policies" of its members and to "ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry. In 2014 OPEC comprised twelve members: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Why are oil prices falling? Here are four main factors driving oil’s sharp decline: 1. US oil production is booming Exploding US oil production has transformed one of the world’s leading oil consumers into one of its leading producers as well – in fact, North Dakota alone produces a million barrels of oil per day. US production now rivals oil giants Saudi Arabia and Russia, largely thanks to innovative drilling that has unlocked oil and natural gas deposits trapped in shale rock. US production has...
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...Upheavals In Oil Prices In The World Robert Bourgot Florida Institute of Technology The Causes of Oil Price Upheavals in the World Introduction At this stage of civilization, oil has become an essential commodity for all countries of the world. The lack of it means that the pace of development of any country will be adversely affected (Carollo, 2011). The world has, in the recent times, experienced severe fluctuations in oil prices. As at the start of twenty first century, the oil prices have shown a significant increase, but the most significant rise in oil prices started around the year 2002. As mentioned earlier, these upheavals in oil prices have adverse effects to the economy of each nation. An increase in oil price causes increased production costs which consequently lead to cost push inflation. This leads to unemployment, decrease in supply, fall in the people’s purchasing power among many others (Brabec, 2012). In order to address these issues, it is imperative that the roots of these issues are identified. This is the central focus of this paper. It identifies and explains the possible causes of oil price upheavals in the world. According to Maher (2012), causes of fluctuating oil prices in the world can be explained under demand side, supply side, economic side, and environmental protection side. This section looks at the causes of oil price upheavals from the different points of views mentioned above. The demand for crude oil has been...
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...Oil Prices’ Impact on Economic Growth Since 2008, the U.S. has seen one of the slowest recoveries from a recession since the Great Depression. Never before since World War II has either inflation adjusted GDP or unemployment rate been below where it was four years after a recession began. Our economy in this recovery could have grown and created jobs at the average rate like the 10 previous postwar recessions. GDP per person could be $4,528 higher and 14 million more Americans would be working today (Gramm and Solon). Economists claim that the lack of strength in the recovery was due to the depth of the recession and underestimating the severity of the economic disaster. Another speculation is that the financial crisis, by the very nature is a much slower and more difficult recovery. A recession is generally defined as a decline in GDP growth in a six-month period. So what can keep the GDP, or the value of all consumed goods, from returning to a healthy economic state? Oil is a primary source of energy we use everyday. The more oil we use, the faster the economy grows. Over the last forty years, a 1 percent hit to the world oil consumption has led to a 2 percent increase in GDP. That means if GDP increased 4 percent a year, like before 2008, oil consumption was increasing by 2 percent a year (Anandan, Ramaswamy, and Sridhar). Statistically, in 2006 figures display that the average oil price was $67.65 per barrel. In 2008 when the recession hit, the average oil price was...
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...Deal with High Oil Prices? Currently we are facing a very serious issue, That is, hike in oil prices which is increasing rapidly. Now a day’s oil price is soaring the sky, which can be depicted as one of the major drawbacks in the growth of our economy because high oil prices generally cause a huge negative impact on the global economic growth and continuous depreciation of Indian rupees. So we will discuss how to deal with high oil prices and the methods to overcome. In India there is scarcity of natural resources due to which we have to import petroleum from other countries. As day by day demand for petrol, oil products is increasing and consumption rate of oil being high, it consequently tends to increase in oil prices. Government is always blamed for ever increasing prices but somewhere we people are also responsible for high oil prices. It is our duty also to see how we can contribute towards reduction in oil prices. We must keep in mind that oil is not extracted in our country, so we should also preserve our resources and them in a sustainable manner. According to my opinion only solution we are left with to deal with high oil prices is to reduce the consumption of oil i.e. Decrease in consumption = Decrease in demand = decrease in price. Now the question arises how to reduce the consumption of oil? It can only be reduced by combined efforts of both government and Common People. Following are the measures to be taken to reduce the consumption of oil which in turn...
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...How Crude Oil Prices Affect Gas Prices Crude oil prices make up 71% of the price of gasoline. The rest of what you pay at the pump depends on refinery and distribution costs, corporate profits, and Federal taxes. Usually, these costs remain stable, so that the daily change in the price of gasoline accurately reflects oil price fluctuations. (Source: EIA, FAQ, December 6, 2013) It usually takes about six weeks for oil price changes to work their way through the distribution system to the gas pump. Oil prices are a little more volatile than gas prices. This means oil prices might rise higher, and fall farther, than gas prices. Historical Oil and Gas Prices: Oil and gas prices have been especially volatile since the 2008 financial crash. Here's a look at their peaks and valleys, and what caused the price swings. * 2014 - Prices remained around $100/barrel. That's because the U.S. has plenty of shale oil. 2013 - Oil rose swiftly to $118.90/barrel on February 8, sending gas prices to $3.85 by February 25. Prices had started rising earlier than normal thanks to Iran's threatening war games near the Straits of Hormuz. What Causes High Oil Prices?: Like most of the things you buy, oil prices are affected by supply and demand. More demand, like the summer driving season, drives higher prices. There is usually less demand in the winter, since only the Northeast U.S. uses heating oil. However, oil prices are also affected by oil price futures, which are traded on the commodities...
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...on GDP and on the masses. Why are these problems visible in a country like Kenya? Because so many other problem are putting multiplier times negative impact on GDP and other macro economic variables such as inflation. Oil and other petroleum products are scarce commodities in the world. Like prices of other commodities the price of crude oil experiences wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply. Throughout much of the twentieth century, the price of U.S. petroleum was heavily regulated through production or price controls. In the post World War II era, U.S. oil prices at the wellhead averaged $28.52 per barrel adjusted for inflation to 2010 dollars. In the absence of price controls, the U.S. price would have tracked the world price averaging near $30.54. Over the same post war period, the median for the domestic and the adjusted world price of crude oil was $20.53 in 2010 prices. Adjusted for inflation, from 1947 to 2010 oil prices only exceeded $20.53 per barrel 50 percent of the time. (See note in the box on right.) Until March 28, 2000 when OPEC adopted the $22-$28 price band for the OPEC basket of crude, real oil prices...
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