Effects Of Oil Prices On Global Economy

The consumption of the oil cause changes in the supply and demand. The United States produces 11 million barrels of oil every day. We are one of the biggest countries to have a big influence on the production and prices of the oil. The basic supply and demand theory explains that the if a product is produced more, the cheaper it should sell. If a country were to double the output of oil day, prices would fall and the Production is high, but the distribution of oil isn’t keeping up with the market. The United States builds an average of one oil refinery per 10 years. This is a net loss due to the fact construction has slowed down since 1970s. Since 1970s, the United States has 8 less oil refineries today. The reason why we are not oversupplied with cheap oil is because of the other countries’ higher net margin and the only operate at 62% of their capacity. Excess capacity is only there to meet future demand. With demand moving accordingly, oil prices will continue to be set mostly by the market — despite external players’ best efforts. (McFarlane)

Oil price increases can also stifle the growth of the economy through their effect on the supply and

The “U.S. became the world’s top producer of petroleum and natural gas” in 2013 (Energy Infrastructure). “Capital spending in the infrastructure that moves and transforms oil and gas into everyday products … has increased by 60 percent between 2010 and 2013” (Energy Infrastructure). The rise to become the top producer has led to the decrease in “U.S. oil import dependence” and the “rise of U.S. product exports” (U.S. Oil Import Dependence). The increased exportation of oil and gas by the U.S. has allowed both of these products to become large moneymakers for the United States. Although we will probably never “completely eliminate our need” for oil, we can reduce our petroleum consumption and the damage we inflict on the environment (Reduce Oil Dependence Costs). By decreasing the “dependence on oil” in new vehicles, there has been a

The consensus from the 1970s and 1980s was that there was an inverse relationship between oil prices and real economic activities. This belief later changed when the oil price crash of the mid-1980s failed to boost economic growth. Researchers then believed that increasing oil prices negatively affect the economy whereas falling oil prices have very little impact and by the 1990s this impact was assumed to be minimal (DePratto, de Resende and Maier 2009). More recently, researchers have found that increases in the oil prices adversely affect the economy whereas the impact of a decline in oil prices on GDP growth is only negligible (Jimenez-Rodriguez and Sanchez

The United States consumes more than 25% of the world’s petroleum products which is a large percentage, considering only 3% of the world’s oil reserves are produced by the United States. Given the demand for petroleum products such as gasoline, understanding why Crude oil prices have skyrocketed in recent years, is not hard. According to the article “Ending America’s Oil Addiction,” the surge in crude oil prices can be reduced in large part to the simple concepts of supply and demand. (Cooper, 2008)

Gasoline is a essential resource to most family’s daily life. The price of oil has plunged dramatically and reached the level that was last seen during the recession of 2009, even though it has started to bounce back a little bit. Brent crude, the international benchmark of oil price, was around $53 a barrel at the end of January 2015. The constant decline of the oil price may have affected all oil-producing countries, including Canada. The experience of plunging oil price and deprecation of the Canadian dollar lead me to analyze how Canadian economy was hit or benefited by low oil price.

In a revealing article by George Perry (2001) the author discusses the economic impact that a disruption in the oil supplies would have on world oil prices. He states “Currently 28 percent of the world's crude oil comes from the Organization of Arab Petroleum Exporting Countries (OAPEC) consisting of Arab Muslim nations, some of which are not part of the OPEC cartel. The governing regimes in all these countries are at some risk [due to the war on terrorism].” He goes on to state that in a worst case scenario the economic consequences of oil supply disruption would be “oil prices rise to $161 per barrel driving gasoline price to $4.84 per gallon. The increase in the nation's bill for products of crude oil rises by about 10 percent of GDP, which adds perhaps 15 percent to the inflation rate in the first year. And the recession is the steepest and deepest of the postwar period, with GDP declining nearly 5 percent the first year.”

This report will consist of the causes and consequences of the changing price of WTI crude oil and recent trends in the global price of oil. It will also include the effects of the ever-changing price of oil on individuals, business firms, governments and the economy.

One macroeconomic objective that might be affected by rising oil prices is the current account of the balance of payments. The current account is a record of the trade in goods and services, income flows, and current transfer. The balance of payments is a record of the financial transactions over a period of time between a country and its trading partners.

A rise in oil prices impacts Lesser Developed Countries (LDCs) negatively. Not all countries in the world are as developed as the United States, Britain, and Japan. Many countries only recently have begun modernizing. A huge factor in the rate of modernization is the price

Food prices and the prices of other materials will also increase as a result of peak oil, which is another economic impact. This is because all countries rely on imports of food or other materials. For example, more than 80% of the imports to America are goods and industrial equipment ($2.268 trillion) and the smallest import category is food ($115 billion). These rates will be affected due to peak oil because most of these imports are either shipped, or are received by transportation, which runs on oil as a fuel. When peak oil is reached, ships and other methods of transportation would not have enough fuel to run on which therefore results in countries not receiving materials they need. This issue greatly affects low-income countries such

The oil-rich Bolivarian Republic of Venezuela, located on the northern coast of South America, was for many decades considered among the wealthiest nations in the entire continent. While having the largest proven oil reserves in the world has often proved a tremendous boon for Venezuela, the very black gold that has been the cause of its success has also proven to repeatedly be its kryptonite. Over half of the nation’s Gross Domestic Product stems from petroleum exports – which equates to approximately 95% of total exports. It is really not too hard to imagine what drastic consequences shifts in global oil prices could have on the economy.

In this text, I concern myself with the contents of two articles based on recent microeconomics issues. During the last two months, the price of gas in the U.S. has been on an upward trend. Taking into consideration recent happenings on the international scene, this trend could have been triggered by many different factors. The articles I make use of in this case discuss the rising oil and gas prices.

The impact of lower oil prices on a global basis is expected to assist the global economy overall, however for countries that have a higher reliance on the production and sale of oil (net exporters of oil) then those economies will be negatively impacted.

Since the past few decades, owning a car has become a necessity in order to commute from one place to another. However, cars do not work automatically, they require fuel. Since the past decade, the petroleum industry has become one of the leading industries impacting the nation’s economy. Oil has become an essential commodity as it is utilized in transportation vehicles, serves as a raw material for manufacturing plastics, and is utilized in homes for cooking. America’s economy is greatly dependent on petroleum as it is the “black gold” of the nation. The considerable significance of oil has led to the drilling of it, which is not only limited to land, but also the oceans. Offshore drilling is a method in which petroleum is extracted from underneath the seabed. It is one of the significant technological advancements in the past few decades. However, the ones who are involved in the process of offshore oil production are humans, and humans tend to make mistakes. In 1969, due to a human error, an oil spill occurred and natural gas, oil, and mud shot up the well and oozed into the ocean (“Offshore Drilling”). The oil spilled led to an environmental disaster which killed thousands of marine animals and distorted the environment. In order to prevent the same error, the government passed a moratorium in 1981, banning more than 85 percent of the country’s oil drilling sites (“Offshore Drilling”). The moratorium restricted the United States to mass-produce its natural resource.