Oil Prices and Economic Growth

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.

It is estimated that 1.3 trillion barrels of oil reserve is left in the world’s major fields (Institution of Mechanical Engineers 2015). At present rates of consumption this will be enough oil to last approximately 40 years. By 2040, it is intended for production levels may be down to 15 million barrels per day which is approximately 20% of the amount of oil which is currently being consumed (Institution of Mechanical Engineers 2015). It is likely by the year 2040 that the world’s population will be twice as large (United States Census Bureau 2015). Additionally, it is likely that more of the world will be industrialized and therefore more dependent upon oil.

This research paper provides an overview on why there is oil price falling in the United States. It will examine the reasons that are influencing fall of oil prices. Additionally, the paper will seek to explore the effects caused by the fall of oil prices in the American’s economy.

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

In our recent history, oil has been the driver of the global economy. The advance of modern industrial civilizations was facilitated by cheap and abundant energy in form of fossil fuels. At present, oil accounts for about 40% of the primary energy source and natural gas contributes 23%. This statistic shows how much the world is dependent on oil. The dependence on oil is majorly in the industrial, transportation, and agricultural sectors. The use of oil as a fuel source is seen to have increased by around 50% over the last century. The energy needs have been observed in the daily activities of industry, private life, and commerce.

Nonetheless, the countries that export a lot of oil will attempt to stabilize their economy by reminding the world’s population that they are very dependent on oil for producing electricity, consumer products, and fuel.

Oil is a scarce commodity that is extracted from deep in the ground and it is not available everywhere. It is a commodity that has many uses and as such, its price, supply and demand fluctuate based on the needs of the economy and the market. In addition to oil being used to make gasoline it has many other uses, such as to make plastics, heating for people’s homes, in asphalt, and other things. Because of its many applications, it is a product that is in or plays an important part in our daily lives in one way or another. When the economy goes through periods of expansion, which are periods of economic growth, the demand for oil becomes greater and producers are encouraged to engage in more drilling in order to increase the supply to keep up with the consumption and also to maximize profits.

The theory of ‘peak oil’ refers to the inevitable peaking and consequent decline in the amount of oil produced in any nation throughout the world. The term ‘peak oil’ usually refers to the time when the maximum rate of global petroleum extraction is reached after which a terminal decline in the rate of production occurs (Heinberg, R. 2003, pg. 97-98). There is an ongoing debate about when peak oil will occur; some economists deem it to be decades away, while others believe it has come to pass all ready (Strahan, P. 2007, pg. 202). As the world is so reliant on this finite resource it is a crucial problem that needs to be

World oil demand is increasing as emerging economies need more energy to increase their living standards. Estimates, shown below, are that by 2030, China and India as emerging markets will import over 70% to 90% of their fossil fuel needs (1) . Coupled to a continued high and growing demand for oil, makes this a robust market for the next 30 years.

This paper explorers a few of the possibilities of the reasons behind the increase and/or decrease in the price of oil, and the effects these prices have on the economy. It introduces some key players in the oil business itself and helps to break down the logic of how oil is the singular contributor of revenue to many economies worldwide. This research examines, through many resources, the different roles that the U.S. and foreign governments play in determining the price of oil, whether from an import or export standpoint. Also, many articles show how the stock market

Over the past year oil prices have dropped significantly. This is mainly due due to an increase in technology, which has allowed for a significant increase in the production of oil. The United States whose top import is Oil has started to produce more oil domestically. Oil prices have dropped from $110 a barrel of WTI to a whopping $41. This reduction in the demand for oil would usually curb supply, but many countries are afraid to curb supply incase of loosing market power. Another reason prices are dropping is people are being more environmentally conscious and reducing there oil use. In recent years we have seen many alternative fuel sources introduced into the market and people seem to gain utility from “going green” even if it cost more. The reduction in oil prices is heavily affecting economies that are reliant on oil exports. Oil prices, which continue to drop, are negatively affecting the GDP of countries who are reliant on oil exports. This drop in prices is can be simply by supply and demand there is most evidently a higher supply of oil then demand has brought prices down. Since the oilrigs have already been drilled countries rather sell oil at a loss then not sell any oil at all, so that some of the money can be recovered. This means countries are choosing not to curb the supply but continue to produce even though the market price is so low.

From many decades oil is discovered and considered as the essential base in every part of people lives. It is the energy source and raw material that drives development. Oil is currently the most important commodity (EL-Sarif et. al. 2005). It is vital to transport (air, sea, road and rail) and also the production of goods for example, tar and plastic. With the demand for energy has risen relentlessly over the last 150 years in line with industrial development and population growth. Oil is the lifeblood of the modern world, and the combustion engines its indomitable heart. During the last century, consumption of products which are extracted from crude oil has increased significantly by a factor of 200 times as well as an unprecedented expansion of economic activity (Kashcheeva and Tsui, 2015). Recently, government of the countries that produce oil from all over the world are more interested in oil for many reasons such as:

In the late 1970s (during the energy crisis) and early 1980s, the relationship between energy consumption and economic growth was in focus. Studies on oil prices have identified two main categories: those on developed oil importing countries, which comprise most of the literature, and developing oil exporting countries, which are scarce due to a lack of data in these countries. More specifically, I have categorized the literature into three categories: First, I analyse studies on developed countries, which are oil importers. Second, I explore the research on developing countries, which are oil exporters. In oil exporting countries, oil revenue is the key funding source of government expenditures, and therefore fiscal and monetary policies depend on oil prices (Rosser & Sheehan, 1995). And third, I analyse the research on Iran as one of the largest oil exporting countries and also one of the biggest oil reserve holders.

Consumption energy since the 1950s has been in a progressive upsurge in the world. Fossil fuels like oil, natural gases, and coal nevertheless has the aggregate of 80% of the world’s energy consumption despite the fact that there’s has a diminution in some renewable energy resources, cons considering the number of inventions and creativities. In the late 2000s, the speed growth in price of crude oil is a result of increase in demand of oil and gas. Virtually 80% of fossil fuel consumed are oil and gas making their production the main importance to the stability of world’s energy supply

Since 1970s, due to the shortages of oil supply and internationally increasing price of oil, old oil-consuming countries, especially OECD countries, encouraged of improving energy efficiency and developed alternative energy sources, mainly coal and natural gas, to reduce crude oil demand. Moreover, because of increasing oil prices, Non-OPEC countries, such as Russia, the United States and China had growth desires for oil investment. Therefore, Non-OPEC countries’ oil proven