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Importance of oil in the world
The effects of crude oil prices on the economy
Importance of crude oil in the world economy
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From the middle of twentieth century, due to exceptional importance of the crude oil in the supply of the world's energy demands, it has become one of the major indicators of economic activities of the world. Even after the appearance of alternate forms of energy like solar power, water and wind, the importance of crude oil as the main source of energy still cannot be denied. 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. A large number of researchers proposed that exchange rate volatility and oil price fluctuations have considerable consequences on real economic activities. The impact of oil price fluctuation is expected to be different between in oil exporting and in oil importing countries. An oil price increase should be considered as bad news for oil importing countries and good news for oil exporting countries, while the reverse should be expected when the oil price decreases. Through demand and supply transmission mechanism, oil prices impacts the real economic activity. The supply side effects are associated with the fact that crude oil is a basic input to production, and an increase in oil price leads to a rise in production costs ultimately that result in firms’ lower output. Oil prices changes also entail demand-side effects on investment and consumption. Consumption is also affected indirectly through its positive relation with disposable income. Moreover, oil prices have an adverse impact on investment by increasing firms’ costs. On the oth... ... middle of paper ... ...suffer the least as compare to others, with GDP falling by 0.3%, because its indigenous production meets a larger share of its oil requirements. Japan’s GDP would reduce by 0.4%, This analysis assumes constant exchange rates and economic growth for the US economy. The present paper is the extension of the existing empirical literature in two directions. First, we have not focused on the oil importing US economy only , rather we analyzed the effects of an oil price shock in two different type of countries which include five oil exporting countries i.e. Saudi Arabia, Norway, Venezuela, Kuwait , Nigeria and five oil importing country i.e. Pakistan, India , China, Japan , Germany. Secondly, we will not only demonstrate the relationship between oil prices and real economic growth but we will also analyze the role of the real exchange rate for real economic growth.
... If U.S. auto manufacturing takes a down-turn, the U.S. economy will be negatively impacted and the demand for automobiles in the U.S will suffer.
CBC News says that with the US Dollar continuously increasing, prices for United States oil will continue to fall. A big consumer of our exported oil is the United States. Since they can produce oil at a cheaper price then we can, oil rigs in Canada begin to lose demand. To recover from oil prices lowering and the cost of producing it is rising, the Canadian oil industry decided to lay off workers. This caused unemployment to rise and National Income to decrease. With average income decreasing, consumers have the incentive to save, lowering GDP. With the economy starting to fall interest rates will fall and a domino effect
America is dependent on other nations for their ability to create energy. The United States is the world’s largest consumer of oil at 18.49 million barrels of oil per day. And it will continue to be that way for the foreseeable future considering the next largest customer of oil only consumes about 60% of what the U.S. does. This makes the U.S. vulnerable to any instability that may arise in the energy industry. In 2011, the world’s top three oil companies were Saudi Aramco (12%), National Iranian Oil Company (5%), and China National Petroleum Corp (4%). The risk associated with these countries being the top oil producers is twofold. One, they are located half way around the world making it an expensive to transport the product logistically to a desired destination. And two, the U.S. has weak, if not contentious,...
In 2004, crude oil producers around the world expected a 1.5% growth in the world’s demand for crude oil. The actual growth rate was more than double the projections at 3.3%. This growth was due to rapidly industrializing of foreign countries such as, China and India. Therefore the lack of crude oil affected the supply of gasoline to consumers at the pump.
People need oil for daily life and work. Since World War II, oil has caused many serious problems in the United States and throughout the world. Remarkably, economic and social problems were heightened by the emerging energy crisis. By 1974, the United States gained a third of its oil by importing from the Middle East. James Oakes, et al.
For the Canadian citizens, it is a good thing because low cost of oil equals low price for gas, therefore the people of this country will have extra money in their pockets: “typical consumers will be saving an average of $25 a week, or $300 in three months” says Elna Cain in her article titled Why Are Gas Prices Low And What Does It Mean For Canadians. That being said, other businesses can benefit from the extra amount of cash. In other words, the beneficiaries of this decline in oil prices are not only the citizens, but other business owners as well. The reason why oil prices fluctuate is because of the law of supply and demand, which states that if the supply is low then the price will be high and if the demand is low then the price will be significantly low, which is the case for gas today.
The U.S dependency on foreign oil presents many negative impacts on the nation’s economy. The cost for crude oil represents about 36% of the U.S balance of payment deficit. (Wright, R. T., & Boorse, D. F. 2011). This does not affect directly the price of gas being paid by consumers, but the money paid circulates in the country’s economy and affects areas such as; the job market and production facilities. (Wright, R. T., & Boorse, D. F. 2011). In addition to the rise in prices, another negative aspect of the U.S dependency on foreign crude oil is the risk of supply disruptions caused by political instability of the Middle East. According to Rebecca Lefton and Daniel J. Weiss in the Article “Oil Dependence Is a Dangerous Habit” in 2010, the U.S imported 4 million barrels of oil a day or 1.5 billion barrels per year from “dangerous or unstable” countries. The prices in which these barrels are being purchased at are still very high, and often lead to conflict between the U.S and Middle Eastern countries. Lefton and Weiss also add that the U.S reliance on oil from countries ...
Oil-Led Development: Social, Political, and Economic Consequences. CDDRL Working Paper 80. Robinson, J. A., Torvik, R. & Verdier, T. (2006). Political Foundations of the Resource Curse. Journal of Development Economics, 79, 447-468.
The Kingdom of Saudi Arabia is a petrostate. It is a petrostate in the sense that the oil sector dominates the national economy and international exports. (Colgan 226) This is due to Saudi Arabia’s one crop economy, oil. (Ali 100) Oil accounts for 70-80% of the state revenue as well as roughly 95% of export revenues. Before the discovery of oil in the 1930s, the economy rested on Islamic pilgrims. Containing the Grand Mosque, Al-Masjid al-Haram, Saudi Arabia gets a large influx of believers every year for the Hajj, one of the Five Pillars of Islam. During this time of year, income was made by food and shelter sold to the travelers. This was enough to support the state, but not enough to make it the monetary power it is today. What allowed for Saudi Arabia’s climb in the world economic ladder was oil. Oil has been a valuable industrial resource since the beginning of World War 1. Since then the demand for oil has progressively become higher and higher amongst industrial nations, allowing for oil rich states to receive large amounts of affluence. Among these oil rich states is Saudi Arabia, the region with the highest capacity for oil production out of the entire Middle East. From their remarkably high oil production, Saudi Arabia was able to gain considerable amounts of wealth and political significance. Oil in Saudi Arabia politically affected the Saudi government in both their foreign and domestic policy by providing economic power, the ability to fund wars, the ability to use economic diplomacy.
Gas has many effects in our society, and some of these effects have a negative impact in our life. Our daily lives depend on gas, when we go to work, school and going out. We use gas for electricity, cars and many other things. The effects of gas are direct and very affecting in our lives because of the many forms it can be used in. There are many negative effects of rising gas cutting back in vacation time, prices of everything is going up “inflation”, car companies making more efficient cars.
The measure of petroleum abundance and production in Nigeria is measured by the United States. According to the statistical data and the U.S. measures, Nigeria reserves make the country the tenth petroleum-richest nation, and by far, one of the most affluent countries in Africa. In the middle of 2001 its crude oil production was averaging around 2.2 million barrels per day. Though, there is a very prominent market for offshore rigs, nearly all of Nigeria’s primary reserves are in and around the delta of the Niger river. Ever since Nigeria became independent, it is one of the few oil producing countries that can increase its oil output drastically. The g...
The oil & gas sector faces specific risks affecting its financial performances. The main variables affecting the industry are political, geological, price, fiscal, supply and demand as well as cost risks. Given the specific risks, the demand for energy is still gr...
record. The spike in oil prices, up by over 60% since the start of the
In order for any country to survive in comparison to another developed country they must be able to grow and sustain a healthy and flourishing economy. This paper is designed to give a detailed insight of economic growth and the sectors that influence economic growth. Economic growth in a country is essential to the reduction of poverty, without such reduction; poverty would continue to increase therefore economic growth is inevitable. Through economic growth, it is also an aid in the reduction of the unemployment rate and it also helps to reduce the budget deficit of the government. Economic growth can also encourage better living standards for all it is citizens because with economic growth there are improvements in the public sectors, educational and healthcare facilities. Through economic growth social spending can also be increased without an increase of taxes.
During this period, global consumer price inflation presented a trend of fluctuation reduction. According to World Bank data (2015), world real GDP growth slightly which is from 2.4 to 3.3 in 2012-2016. Moreover, weaker investment environment lead to the job creation rate decrease of 1.4% every year after 2011, the unemployment rate is high correspondingly (world economic situation prospects 2016). Industrial commodities like energy, metals and minerals both decline more than 35 each from the beginning of 2011 to the end of 2014 and this trend will continue (World Bank 2015). Meanwhile, China as the world’s largest exporter and the second largest importer country, economic growth becomes slowing than before (Chen 2016). It has the significant impact on the global trading environment. At the same time, global trading volume