Effects Of Oil Prices On The Economy

Oil price increases are generally thought to increase inflation and reduce economic growth. In terms of inflation, oil prices directly affect the prices of goods made with petroleum products. As mentioned above, oil prices indirectly affect costs such as transportation, manufacturing, and heating. The increase in these costs can in turn affect the prices of a variety of goods and services, as producers may pass production costs on to consumers. The extent to which oil price increases lead to consumption price increases depends on how important oil is for the production of a given type of good or service.

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 featured article “The End of Oil,” the author, Alex Kuhlman argues that oil production is decreasing due to the costs of production are rising because cheap and easily accessible oil is hard to find despite increased consumption.(Kuhlman, 2007). Kuhlman (2007) provides evidence both from oil demand and supply aspects to illustrate the imbalance which causes the end of oil.

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.

Discuss how rising oil prices might affect the macroeconomic performance of an economy. (25 marks)

The oil age has become an age of inequality. The discovery of oil has brought the wealth of a few people, and has brought misery to most people. Many oil rich countries suffer from the distortion of the economic development, the financial instability, the increasing gap between the rich and the poor, the serious

Another factor that has contributed to the upward pressure on prices is the increased concern on production levels of oil in the oil producing regions citing the Middle East and Africa (Yellen 3). The impact of the falling international oil production implies that oil supply may not match the world oil demand, which results in an upward pressure on oil prices.

According to Domm (2013), the author of the first article, apart from the unrest in Egypt, several other factors such as a plunge in the inventories of domestic crude oil could drive up demand and in the end trigger an increase in the price of gas. In the opinion of the author, although the problems facing Egypt (and Libya) have affected supply

Another important factor that determines the price of gas is the worldwide demand. The emergence of developing countries like India and China have fueled the demand for oil (Graham & Graham, 2005). When the supply is unable to meet the demand, the price of oil spikes. Oil is traded around the world in US dollars. When the value of US dollar decreases with respect to other countries, then the OPEC countries earn less. To compensate for this lower profit, they will increase the price of oil and this will cause the prices to rise at the pump. The reverse happens when the value of US dollar increases with respect to other countries.

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.

Oil is an important component in many industries and the majority of global energy needs are generated by oil. Hence, it is unsurprising that the annual global consumption of oil is around 30 billion barrels and it accounts for around one-third of all energy consumed . According to the U.S. Energy Information Administration (EIA),Venezuela and Saudi Arabia are the top 2 countries with the most proven crude oil reserves and over 90% of their export revenues come from oil . In addition, since 1980, OPEC’s share of oil revenue in total exports has been consistently over 60%, with the net export revenue at US$730 billion . Hence any disturbance in the oil sector will cause a drastic impact on these economies. This can be illustrated in research where it has provided evidence for a negative relationship between resource abundance and growth. For instance, since the 1970s, Nigeria has been exporting around $10billion worth of oil annually but during same period the proportion of its population living on less than $1 per day has doubled from 36% to 70% (Sala-I-Martin and Subramanian, 2003). Nevertheless, recent studies have shown that there can also be a positive relationship. Countries rich in oil, such as Malaysia and Norway have managed to achieve sustained economic growth.

Energy resources are essential for national security, technological development, overall contemporary life style, etc. In this respect, oil is the main source for worldwide economy. Peak oil would imbalance countries' economical situations and may lead to a chain reaction with negative effects on multiple layers. Evidently, there is mutual interest to prevent such a thing from happening but the possibility is nevertheless considered. OPEC's initial goal to ensure stable prices on petroleum markets in order to avoid any negative fluctuations did not always correspond. The organization actually favored inflation more than in one occasion but its influence in controlling oil prices dropped considerably since 1973. It was proven that, having quadrupled the price of oil, OPEC had in its hands the power to inflict economic hurt on the rich countries. (Beenstock 2007, p. 134) Although OPEC does not completely control the oil market today, it nevertheless continues to be influent because its decisions to reduce production may lead to either a decrease or increase of oil prices. OPEC's existence is dependent on the future of oil. Whether or not oil will dominate as the main energetic source for worldwide economy will decide its future. Considering that OPEC's oil has been a vital source of energy during the last half of century, (Khusanjanova 2011, p. 19) and that oil is expected to play a similar role within the next century, we can assume the organization will at least maintain its

Oil has become the means of survival for both consumers and producers. Consequently, the fluctuations in the price of oil have become one of the greatest concerns in the economy. According to Branginskii, ‘the market of energy carriers, primarily oil, are a great threat to world economy. Lack of clarity with crude oil prices

Before the last drop of the prosperous, cheap oil had been pulled from the grounds of Saudi Arabia, humanity had enjoyed a time of the greatest economic advancement in the history of mankind. Oil gave humans the ability to do tremendous amounts of work in a short time. Oil powered equipment which build infrastructure the roads, bridges and cities. Oil was fed into tractors and combines to work the land and produce ever greater crop yields. Oil was harnessed to make the electricity that powered millions of homes. Oil was the lifeblood of humanity for nearly 150 years. Unfortunately, this industrialization was obliterating the earth’s ecosystems and was the embodiment of the term “unsustainable development”, leading to deforestation, pollution and global warming. Today in 2062, oil trades for $1000 a barrel and is fast becoming even more difficult to produce. The only remaining deposits of oil must be mined in the already depleted oil sands of Canada, Venezuela, the United States of America and Russia. The exponential decline of oil production starting in the 2020’s forced humanity to quickly replace the energy source they relied so heavily upon. But in doing so, humanity changed many of their practices and created a far more sustainable civilization. The depletion of the earth’s oil reserves was one of the greatest moments in the history of mankind, since it forced humans to look towards alternative and cleaner energy sources.

We go to know on the ecuadorian oil situation, his commercialisation to national and international level, analyse the diverse systems of exploitation that at present are treated of unsuitable form and with big deficiencies in the state field Know on the functions that operate at present in Petroecuador, and his result in the Ecuadorian economy. Know those who find mayormente benefited with the resource of the oil in the Ecuador, and as they find structured said advantages as they were the one of a good economy in the country and now is a difficult very high that are crossing. In our country the fall of the price of the oil would mean that the ecuadorian debt will keep growing by several reasons, between them, the prices that renegotiated with the companies devoted to the activity in the country, after the extension of the agreements. In this subject will speak about the situation that is living our country Ecuador and the diverse factors that influence so that the oil go down of price and as this keeping in the actuality.