International Oil Markets and the Global Economy
Oil has a significant influence on international trade, economics and politics.
Starting with the industrial revolution and the introduction of the internal-combustion engine, oil has been an essential factor in the economic expansion of the twentieth century. Its importance has become more pronounced with the spread of transportation and manufacturing. Not all countries can produce all the oil they use however, resulting in two groups: net importers and net exporters of oil. The interdependence between these groups plays a significant role in shaping global economic and political developments.
The Organization of Petroleum Exporting Countries(OPEC), a group of 11 countries,1 produces close to 40 percent of total world oil production2 and owns about 70 percent of proven oil reserves. Other major oil producers in decreasing order of production are the U.S., Russia, Mexico, China, Canada, and Norway.3 Overall, the Middle East, especially the Persian Gulf, remains the major oil-producing region, and holds around 60 percent of the proven global oil reserves.4
The Term Paper on Platinum Group Metal Metals Percent Pgm
Platinum: An Invaluable Earth Resource The advent of the Industrial Revolution sparked worldwide large-scale use of minerals in the mid 18 th and early 19 th centuries, as well as continued growth during the next several hundred years. Over a period of 150 years from 1750-1900, global mineral use saw an increase of roughly 1000 percent while the world population merely doubled. Since 1900, mineral ...
How Oil Prices Are Determined
There are three schools of thought in relation to the determination of crude oil prices, but none have been entirely successful in predicting the path of oil prices. The first school examines the interaction of demand and supply in the determination of the spot price. Microeconomic theory states that if there is excess demand, prices will rise to restore equilibrium. Alternatively, if there is excess supply, prices will fall. The presence of excess supply or demand is evidenced in crude oil inventories. There has been much research on the relationship between inventory levels and primary commodity prices [Gustafson (1958); Thurman (1988); Pindyck (1993)]. The traditional relationship between spot prices and inventory levels, however, broke down after 2004.
The second school of thought posits that commodity markets are generally efficient and holds the view that futures prices have the power to forecast realized spot prices. The majority of the recent literature takes this view. A widely supported approach was that taken by Chinn, LeBlanc and Coibion (2001), who postulated that the best predictor of future spot prices is futures prices. While they found that futures prices are unbiased predictors of future spot prices, the prediction errors were large. Tabak (2003) also found similar results but found that the explanatory power of futures prices was low for changes in spot prices.
The third approach is that taken by Dees et al (2004), who used macroeconomic fundamentals such as GDP and interest rates to model fuel demand and supply and hence explained spot prices. A similar approach was taken by Krichene (2005) and Krichene (2007).
Although the models captured supply and demand influences, significant forecast errors were evident in certain periods.
Forces of supply and demand determine global oil prices. OPEC’s primary goal is to manage market supply by limiting oil production among its members. The objective is to maintain prices that are high enough so that OPEC members make a healthy profit, but not so high that consumers significantly reduce their consumption of petroleum. Because of its production capacity and oil reserves, OPEC’s decisions significantly influence world oil prices. However, the power of OPEC to manage world oil prices has diminished in recent years because of increased production from non-OPEC oil producers, such as Russia, Norway and Mexico.
The Essay on Rising Gasoline Prices Oil Iraq Consumers
By Joe McManus In these times of war threats and terrorism, it is becoming extremely difficult for United States diplomats to maintain friendly relationships with oil rich countries. As a result, the U. S. economy may be faced with a possible oil shortage and continuous rising gasoline prices. As stated in the article "All About the Oil", Time Magazine "Iraqi exiles flew into Washington, D. C. in ...
A country’s consumption of oil and oil products is closely linked to its level of economic activity and vehicle ownership. Main consumers of oil continue to be developed countries (including the U.S., EU and Japan), but consumption in some emerging developing countries has also been on the rise. This is especially true for China and India, which accounted for 35 percent of the global increase in oil consumption between 1990 and 2003, even though they produced only 15 percent of world output over the same period.5
Global changes in both supply and demand caused oil prices to surge from 10 USD/barrel in 1998 to 50 USD in early 2005.
The rise in demand has come primarily from increased economic activity in Asia (especially China) and North America. Despite the high price of oil, global demand in 2004 was 2.2 percent higher than in 2003. In fact, global oil demand in 2004 grew at the fastest rate in over 25 years.6 Cold weather in the Northern hemisphere, which led to an increased use of home heating oil also contributed to this growth.
In 2004, the global supply of oil was affected by fears of OPEC production changes, concerns of possible terrorist sabotage of oil infrastructure, civil conflict in Venezuela and Nigeria, the war in Iraq, and a lack of refining capacity in the U.S., all of which contributed to higher prices. In response to the sharp rise in prices, Saudi Arabia slightly increased its production.
Impact of High Oil Prices on Developed and Developing Countries
All countries are affected by higher oil prices, but the effect varies depending on certain factors.7 First, a country that imports a large amount of its oil will generally be worse off than an oil producing country. Second, countries that require a lot of oil to produce other goods will be vulnerable to higher prices. These effects can all lead to reductions in economic activity. The Organization for Economic Cooperation and Development (OECD)8 found that a 10 USD per barrel increase in oil prices would result in a 0.5 percent GDP reduction in the world economy. The impact would be more severe for oil-importing developing countries however, because they are more dependent on imported oil and are less efficient users of energy. Oil exporters, on the other hand, may benefit from higher oil revenues. According to the International Energy Agency (IEA), the world will require 60 percent more energy by 2030 than it used in 2004 if energy policies remain the same.9 Alarm bells are not ringing yet, and IEA does not expect global oil production to reach its peak before 2030 provided that “necessary investments” are made.
The Essay on Costs And Benefits Of Countries And TNCs Exploiting Energy Resources
Examine the costs and benefits of countries and TNCs exploiting energy resources in technically difficult and environmentally sensitive areas (15) There are both benefits and consequences when extracting energy resources. Humans still need energy to function in day to day life as well as to keep global markets and the economy going, so it is beneficial and necessary to obtain it, and with the USA ...
However, given the vulnerability of countries and the global economy to changes in the price of oil, it may be time that the global community think of ways to reduce its dependence on oil through the creation of alternative energy sources at acceptable costs. This is especially important for developing countries, as economic development cannot be achieved without secure sources of energy.10
