Global Rise Of Oil Prices Economics Essay

Global trick up Of Oil Prices Economics Essay cypher and Oil is a st measuregical commodity and very valuable to everyday life. Millions around the human race argon come uponed if in that respect is a significant change in the outlay of anele, especi eachy if the outlays affixs. The expenditure is affected by two factors, run and take in. If the deliver is steady, stable and adequate to comely up with world motivation in that location wouldnt be an cut d protest. But this isnt the case, to say the least World prices of muscle sources began to turf out as early as 2005 and showed no sign of stopping, By work on 2005 OPEC had admitted to losing control on prices and immediately sought to pump additional set only when wasnt sufficient. In 2007 the price of inunct nearly doubled and go along to rise into early 2008, leading on to the economic crisis. Gas, coal, nuclear push b arlyton and in particular anoint reached soaring prices as high as $160 a barrel c orresponding someone had lost a grip on it somewhere.This price spike in vegetable rock crude color prices is repayable to a combination of factors, first the Kyoto protocol that finally came into effect in 2007, the rising aim from India and china, the neglect from vegetable rock crude oil color companies and investors as they search and pure tone for on new(prenominal) alternative source of goose egg. Political struggles, corruption and attacks on oil pipe lines in one of OPECs member country Nigeria. Where zymolysis in the African oil region has resulted to a lost in 175,000 repose per day.1The fall in value of the US currency compete a study role and is partly responsible, since the price for these commodities is typically quoted in US dollars. The financial crisis and recessions in the global economy in all case appears to pay off contributed to a substantial increase in speculative interest in energy future marketplaces, helping to boost prices.World oil demand is expected to increase substantially until 2020 according to the Energy Information face (EIA , 2006) while in the IEO (Independent Evaluation Office) 2009 projections add world function of energy is projected to increase by 44 percent until 2030 with almost of its demand from non-OECD economies..Although the price of a barrel has gone down in fresh judgment of convictions and settled, the question is what happens in the event of other decline in supply or demand continues to persist, with failing and wretched term policies by the institutes involved, policies that fail to come together, corre new and aline with each other, ignoring the fact that the issue at hand if neglected again or not conservatively managed can cause devastating effect to the world economies.Today oil has proved to be a powerful economic alikel it has also proved to be a capable political weapon. In other words, oil contributes directly and indirectly to the output signal of all goods and s ervices. For example, in 2003 oil as a source of energy bank noteed for close 37% of total energy sources. There is compelling body of evidence that oil production is determined by the interplay of institutional and economic forces. The issue is the policies that the key players practice from the U.S. to the EU and OPEC itself.Statement of the Issue/ProblemWhat policies energy institutes and oil producing countries including political sympathies bodies corroborate to stabilize and control the market? There is pressure on the industry and oil market, with concerns about CO2 emissions and global warming since the time of Kyoto and change magnitude environmental awareness but no adequate policies to break apart the issue or at least one that works in the competitive and challenging industry.Background (of the problem)Oil, coal and gas currently go away more than two-thirds of the worlds energy and electricity, but also produce the greenhouse gases by and large responsible for g lobal warming. A number of models suggest that implementation of the communications protocol get out affect energy markets and oil revenues. At the same time, world energy demand is expected to rise sharply in the feeler years, presenting all societies worldwide with a real challenge see concomitant (1). Several factors as mentioned earlier has cause the previous drastic rise in price and decline supply. Presently as the prices continues to remain low the demand from Asia for oil is increasing by more than two million lay per day2if demands from Asia grow significantly at such a speedy rate when prices are at a stable black market hence in that location are no doubts that prices would not and cannot stay low for too long ( Merlin Flower 2010) .Another issue is that of arrestging, many oil producing countries like Saudi Arabia and capital of Kuwait peg their currency to stronger currencies like the U.S. dollar. When we experient the decline of the dollar during the recession their economies are relatively affected there after they let their currency float. A classic example is in 2006 when other countries with Kuwait leading the way unpegged their currency from the dollar side by side(p) suit was the expected rise in energy prices. Speculations and uncertainty affect businesses and stock value not to say the least oil handle services companies (Giuseppe Marconi 2008). Many oil- exporting economies argue that they peg to the dollar because oil is priced in dollars. Pegging their currency to the dollar eliminates the apparent mismatch between the governments dollar-denominated oil revenues and its local anaesthetic currency spending. The IMF after undertaken research indicates that a significant increase in price of oil on average leads to real appreciation of the currencies of oil exporting economies therefore might keep been another reasons for their actions. This logic, however, fails to accurately mention the real fiscal problem of oil-exporti ng economies. Appendix (2) shows a list of major exporting economies and those that peg or float their currency.There is a growth view that, if nothing is done to cut the growing demand on world consumption of oil , there is probably to be an oil supply crunch deep down the next 10 years, Because oil consumption is responsible for some 25% of greenhouse gas emissions, efforts to reduce emissions would appear likely to affect the market for oil According to the economist in 2004 global consumption of oil increased by 3.4% , with nearly a third from growing nations like china where its demand is predicted to be about 16%. Supporting that is a chart from the European Commission in Appendix (3). Upon that there is insufficient investment by the international and oil companies many multinational oil companies are or energize dog-tired time buying their own shares rather than evolution the society they present.3Although with the riddance of a few whom participate in the increment of their local economies but how adequate is this? If this is to happen, there is no doubt it might trigger another economic crisis and causing a global impact.Oil export revenues account for between 9% and 40% of GDP in OPEC economies, so trim down oil revenues means reduced economic growth. For most of its members which are evolution nations a decline in economic growth has implications for their relative economies most especially unemployment for those with high population growth rate.So far all parties involved with significant influence in the market have policies of their own different interest. Policies tried have been short term policies and have proved no effect so far. A typical example of short term policy was in 2001 the U.S under introductions from the president, the U.S. announced it would release 30m of barrels from the Strategic petroleum Reserve (SPR) rather than selling the oil. Between sumptuous and November the department of Energy (DOE) requested offers for oil to be replaced back. These efforts proved to have back fired increasing the cost of crude oil having been handled in a clumsy and old fashion way. The U.S policy whether short-term or long term can have the long term forbid effect of increasing the cost of crude oil. This showed the importance of set policies and remediate in the energy market especially oil which the world depends on. If there isnt no change in policies the by 2015, then there is likely to be a future crash in the energy oil market affecting individuals across the globe either in picayune ways from transportation or domestic energy consumption.Critique of preexistent PoliciesWhen it comes to policies either set by OPEC or the U.S. Energy policymaking in the last(prenominal) 35 years has been neither decisive nor strategic. The world can no longer afford to forward oil policies which we fail to implement. (Thomas D. May 2006). previously OPEC adopted the quota system to limit its oil supplies to keep oil prices at certain levels. According to this system each OPEC country is allocated a unique(predicate) level of oil production to limit total OPEC oil supply and thereby influence oil prices in the international market. In the late 19s around 1986, this system did not help OPEC to avoid the oil price collapse because most OPEC countries did not respect their quotas, Angola, Venezuela, Iran and Nigeria named the biggest cheaters. Bearing in creative thinker These OPEC short term policies affect international affairs.It is thought that implementing the Kyoto protocol will require a carbon taxation (or equivalent)in lengthiness B countries, and this will raise the price of oil to consumers and therefore reduce demand there. Because these Annex B countries account for more than 60% of world oil consumption any significant reduction in demand there may well cause a decline in the producers price of oil on the global market. Further, if the principal mechanism by which Annex B countri es reduce emissions is through a carbon tax, then this tax wedge may increase the rent that governments in energy trade countries have in the oil market, transferring wealth from oil producers to consumers (Mabey et al., 1997, p. 274). To put this in perspective, the G7 countries (US, Canada, Japan, Germany, Italy,Britain and France) already win some 70% more income from oil taxes than OPEC members earn from petroleum exports (OPEC, 2001). So, through reduced demand, reduced price and reduced market rent it is thought that implementation of the Kyoto Protocol will reduce oil export revenues. Other concerns expressed by OPEC countries include the potential increase in renewable subsides, which they perceive to be given at the expense of other energy forms (e.g. oil) and discriminatory in nature (WTO, 2002. Problem is that everyone seems to have or develop their own policies from the Arab council to the European Union, all different policies different directions and interests. In th e last few years OPEC agreed on a range of oil prices (ie between $22-28/B) and used its quota system to keep its oil prices within these limits. However, OPEC did not give any scientific rationale for this range or explain whether or not it was based on any scientific study. Nor did it say such a study took certain factors into consideration. In other words this price range seems to be arbitrary.On October 2007 in London the EU proposed new energy policies to come into place in other to tackle the challenging industry . The EU has clearly recognised that the internal energy market is the policy line that ensures fair prices to citizens and industries. At the same time, it guarantees that even smaller companies, for instance those that invest in renewable energy, have access to the energy market. Absent from this section of the initiative are measures to directly address the current peaking of internal Natural Gas production. Although put forward as so, market liberalization wont b atten down the increasing Natural Gas imports needed in the following years to meet internal demand. Lines of action to substitute Natural Gas or to secure other foreign sources simply do not exist. The main energy problem in Europe is not mentioned even less dealt with.These policies have a unique flexibility in that they can be used as a cure or as a weapon, but commonly their primary purpose is to promote or protect economic interests.Policy options and passportsAs regards to reform of the oil or energy sector, in order to meet the requirements concerning the opening up of the market, an appropriate legislative and regulative framework is necessary, in particular as regards regulation, and implementation of energy policy. obscure from the formulation and implementation of an energy policy, work should be concentrated on two aspects opening up production, distribution, pricing and restructure of economic development plans by adopting efficient policies and procedures.There are s everal policy measures and recommendation that might minimise any possible losses to OPEC countries.One, assistance from developing countries to exporting economies to diversify sources of income, as models results show that economies with a diverse shape of production and exports will be least affected by the Kyoto Protocol (Polidano et al., 2000).Two, OPECs share of oil market and cartel power would increase if there are measures to discourage the production of fossil fuels within developed countries Third, measures to desert nuclear power generation would also favour oil exporters as more primary energy needs would presumably be met by oil.Fourth creating a situation where by countries wouldnt be able to peg theirs with another and jumping off once the market changes rather look to creating fiscal policy and finally the issue to sell essential and defenceless commodity in a more stable currency like the euro, as the U.S. is unpredictable the least to say.However, this does not mean that all policies are going to be successful they need to be well managed within a sustainable balance of power from global institutes.AppendicesAppendix (1) control panel 1. World Marketed Energy Consumption by sphere Grouping, 2006-2030(Quadrillion Btu)Region 2006 2010 2015 2020 2025 2030 come AnnualPercent Change,2006-2030OECD . . . . . . . . . . . . . . . . . . . . . 241.7 242.8 252.4 261.3 269.5 278.2 0.6North America . . . . . . . . . . . . . . 121.3 121.1 125.9 130.3 135.6 141.7 0.6Europe . . . . . . . . . . . . . . . . . . . . 81.6 82.2 84.8 87.9 90.0 91.8 0.5Asia . . . . . . . . . . . . . . . . . . . . . . 38.7 39.5 41.8 43.1 43.9 44.6 0.6Non-OECD . . . . . . . . . . . . . . . . . 230.8 265.4 299.1 334.4 367.8 400.1 2.3Europe and Eurasia . . . . . . . . . . 50.7 54.0 57.6 60.3 62.0 63.3 0.9Asia . . . . . . . . . . . . . . . . . . . . . . 117.6 139.2 163.2 190.3 215.4 239.6 3.0 plaza East . . . . . . . . . . . . . . . . 23.8 27.7 30.3 32.2 34.6 37.7 1.9Africa . . . . . . . . . . . . . . . . . . . . . 14.5 16.2 17.7 19.1 20.6 21.8 1.7Central and South America . . . . 24.2 28.3 30.3 32.5 35.2 37.7 1.9Total World . . . . . . . . . . . . . . . . . 472.4 508.3 551.5 595.7 637.3 678.3 1.5 bankers bill Totals may not equal sum of components due to independent rounding.Sources 2006 Energy Information Administration (EIA), International Energy Annual 2006 (June-December 2008).Summary info on major oil-exporting economies Appendix (2)CountryOil and gas export revenues, 2006(billions of dollars)Average oil exports, 2006 (millions of barrelsa day)Population (millions)Exchangerate regimeChange in REER,end 2001to end 2006 (percent)Saudi Arabia195.68.821.4 restore (to dollar)-22.2Russia190.87.4142.9Managed float(euro-dollar basket)39.6Norway75.72.34.6Floating6.2United Arab Emirates70.22.22.6Fixed (to dollar)-18.9Venezuela60.32.425.7Fixed-25.6Iran60.12.468.7Managed float22.3Kuwait55.92.32.4Fixed (to basket)n.a.Algeria53.31.732.9Managed float(to dollar)-22.0Nig eria48.51.9131.9Managed float(plans to float 2009)12.8Libya38.31.35.7Fixed (to special muster rights)n.a.Kazakhstan24.61.515.2Managed floatn.a.Qatar21.91.00.9Fixed (to dollar)n.a.Oman16.40.73.1Fixed (to dollar)-18.4Bahrain9.40.00.7Fixed (to dollar)-25.4n.a. = not available differentiation Oman and UAE real effective exchange rate (REER) estimates are based on International Monetary Fund annual data,which end with 2005. For Nigeria, it reflects revenues of net oil and gas exports. Irans exports reflect its fiscal year 2005-06.Sources IMF, International Financial Statistics IMF Country Reports BP Global (for energy data) national central banksCIA, World Factbook (for population).Appendix (3)