Crude oil is the most essential type of energy for all the countries, mainly for developed and developing countries. The value of crude oil is such that it is found in day to day activity of individual as well as the economic development of the country. Recently, the GDP of China and India reveal that the economies of both these countries are growing at faster pace and are the large customers of crude oil on earth market. Therefore the increase in oil prices inadvertently affects the GDP and economy of the countries. During 2008 world witnessed the growth in the prices of crude oil reaching a new high threatening the world economy at large, thanks the economic crisis, this economic collapse has taken it down again. It could be exaggerated that increase and decrease in the about oil prices the world economy that makes it essential to study its impact on the world economy and exactly how it effects the alternative energy resources.
OPEC reports the recent surge inside the oil prices occurred at the time when there was clearly absolutely no shortage of oil in any way. The purchase price upsurge associated with volatility continues to be recognized in most commodity groups including energy, metal or agricultural products with prices doubled since 2005. OPEC reports it has grown the supply of crude oil by 4 mb/d since 2003 and additional increased it by more 1 mb/d with absolutely no shortage of crude oil on the market. (World Oil Outlook, 2008)
Some reasons behind upsurge in crude oil prices – Many elements have triggered this volatility in crude oil prices. Keeping aside the demand and provide elements, fluctuations inside the dollar value has become the primary reason for rise in the prices of crude oil. Ray and Olga (2004) reported that oil prices are the cause of major developments on earth economy that may trigger inflation and recession as with 1974 and 1979 which ended in slowdown of world economy. According to Chandrasekhar (2005), the main cause of rise in the crude oil prices is definitely the rapid progression of United states, China and India, forcing the business to extract and refine more oil from your reserves. It is also reported that global demands have risen by 2.7 million barrels daily during 2004, highest since 1976. Some factors that have helped the cost upsurge include US occupying Iraq, Saudi Arabia being attacked by terrorist temporarily affecting oil supplies, speculative investments by financial investors.
Decline in OPEC’s Surplus Oil Production Capacity – Increases in global need for the crude oil have forced the oil producing nations to create more crude oil in order to meet the demands. The above mentioned figure implies that we have seen drastic decline in the oil manufacture of OPEC countries; this demand/supply factor is the main reason for rise in crude oil price touching $140 per barrel.(Hiromi Kato, 2005)
As per the BPs Statistical Overview of World energy for the year 2007, it is actually revealed that interest in the planet touched 83.7 million barrels/daily or 3.9 billion tons/year which is equal to 5 times the annual household water consumption. The above figure implies that the increasing demand has resulted in upsurge in crude oil price which rocket from mid 2005 till 2008. According to the figure, oil price didn’t had any upsurge till late 2000 but as a result of increased demand in Asian countries, the crude oil price escalated.
Trends in Oil Prices – Roncaglia using Hotelling theory explains that this equilibrium price of the scarce resource net of extraction costs rises over time in the rate which is equal, every year, towards the rate of interest. It is actually understood using this statement that cost of the scarce commodity increases at the rate year in year out using the added rate of interest. The crude oil is a crucial ingredient in the expansion of world economy. It really is discovered that commodity traders are accountable for oil prices who bid on oil ukmaqt contracts by looking at current flow of oil with regards to output, oil reserves as to understand what is available and demand of oil, mainly from U . S ..(Kimberly Amadeo) In accordance with OPEC Monthly Oil Market Report released for August 2008, it is actually highlighted that OPEC Reference Basket (ORP) rose to $2.89/b or 2% during July 2008 to $131.22/b with US dollar weakening and geopolitical tensions dominating the upward trend.
However as a result of weakening economic conditions, recovery in US dollar and increased OPEC oil exports, the purchase price came right down to three month low of $109/ b. Based on OPEC, the planet economy will grow at 3.8% in 2009 as against 3.9% in 2008. It also reports that developing countries growth rate remains unaffected at 5.6%. India’s growth is up at 7.7% as against to unchanged China at 9.2%.(www.opec.org) The graph represents the trends in crude oil prices from 2006 to 2008. The figure indicates that an oil price in 2006 was $50 to $70 per barrel as compared to $50 to $90 per barrel around 2007.
The increase in oil price is visible from fourth week of August 2007 which touched $90 per barrel at the end of 2007. This trend continued during 2008 with all the price touching to $140 per barrel mark in second week of July. However, some controlling factors and increased export from OPEC suppliers, gave some relief with steep fall in crude oil price up to $118 per barrel during fourth week of August 2008.