The Falling Oil Prices Of 2014 : A Case Study

Several oil-countries have been facing economic and political turbulence as a result of the crash in oil prices, and there is disagreement among OPEC as how to handle the situation. (Krauss) While this is happening, America’s oil production continues to rise, as it inches closer to becoming an energy superpower in production and consumption; and countries that depend on their oil exports face recession.

Since June 2014 the prices of oil have fallen by more than 55 percent (Bank of Canada 2015). As a net oil producer, plunging oil prices have great implications for the Canadian economies. Lower oil prices affects the Canadian terms-of-trade, defined as the relative price of exports to imports. A weakened terms-of-trade reduces national income as lesser and lesser quantities of imports can be purchased with a given set of imports. Gasoline prices also fall as a result of lower oil prices

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.”

The U.S. was supposed to be the world’s new swing oil producer, able to nimbly open and close the taps in response to market forces, thanks to its bounty of shale fields.” In the past a barrel of oil has been one hundred dollars, recently it has dropped to thirty dollars. Though some wells can be profitable at low prices it puts a serious strain on the oil industry as explained in this article.

Drop in fuel prices can also affect the producing countries negatively. This is because the production cost may be high yet the prices are low. These countries still are spending the same amount of time to get crude oil from the ground and they have to stay on the same price that the market is

Oil-The article”OPEC #1”explains the oil prices.The Oil of the Middle East is the price of oil has fallen by nearly half in just six months.Anyone who buys oil or gas is happy because the prices are low.Car and truck drivers, airlines, and shipping companies are all happy because they don't have to spend as much money on gas. Oil companies are not very happy. They are losing money.A barrel of oil now costs $58 and last summer it was $107.Oil prices have gone down and people are happy,at least some of

Graph 1 represents the major companies and nations which product crude oil. It also represents how the bent crude oil price has fluctuated from 2004 until 2014. From 2004-2008 it is evident that there is a steady rise in oil prices, from $35-$150 per barrel. Towards the end of 2008 it is evident that there is a significant drop in oil prices, from $150- $32 per barrel. This is due to the Global Financial Crisis (GFC) where the stock market collapsed on October 28, 1928, through this came the rapid decrease in oil prices. From 2009-2011 there is a steady increase in oil prices which was caused by the stock market repairing itself from impact of the GFC. In 2013 we are able to see declining oil

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.

The present study is intended to analyse the relationship between oil prices fluctuations and its role on GDP growth of United States economy. Oil crisis is prevailing in almost all developed and emerging nations for more than 40 years. Remarkable increase in oil prices have commenced from 2001 and decrease in prices was observed in 2008 during financial crisis. During decreased demand in Dec 2008, the crude oil prices dropped from 145 USD to 33 USD. However, soon prices started to rise sharply as then before. Oil caters 36% of US energy demand currently (Kilian, 2008). Oil is reported as main mover for US economy as 70% were consumed for transportation and rest 24% for industry and manufacturing and final 5% for commercial and residential sectors. The primary oil consumption rate continues to rise linearly and achieved its peak during 2008 and 2009.

Rising oil price fuels stocks, NewsBank Newspapers – Australia and the World, 24 May, 2016, p. 26

This sharp increase in the world oil prices and the volatile exchange rates are generally regarded as the factors of discouraging economic growth. Particularly, the very recent highs, recorded in the world oil market bring apprehension about possible slump in the economic growth in both developed and developing countries.

The Gulf Cooperation Council states (GCC) are heavily dependent on oil to generate economic growth. Oil and natural gas are the two main sources of capital inflow that enters into these countries. GCC countries’ dependency creates economies that are sensitive to any decline in oil prices. After four years of relatively stable oil prices of around $105 per barrel (bbl), a sharp and notable decline occurred in June 2014. In the face of the plummeting oil prices, most GCC countries have cut their spendings to cope with the significant reductions in their revenues.

Over the last few years, the prices of crude oil and natural gas have depicted turbulent rising and falling trend. Changes in these prices are largely determined by supply and demand factors in the global market. The recent financial crisis that occurred in 2008 and 2009 displays poor economic conditions that have led to reduced demand of oil due to poor economic activities among many countries. Presently, the world economy is experiencing a recovery with increased demand for gas arising as a necessary move. This paper addresses the issue of crude oil and natural gas prices, providing an analysis of the existing linkage between individual prices and various aspects having an influence on resulting prices of these products.