Crude oil is the most important form of energy for all the countries, mainly for developed and developing countries. The importance of crude oil is such that it is found in everyday activity of individual as well as the economic development of the nation. Recently, the GDP of China and India show that the economies of both these countries are growing at faster pace and are the big customers of crude oil on the planet market. Therefore the rise 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 financial crisis, the recession has brought it down again. It may be exaggerated that increase and decrease in the opec the world economy that makes it essential to study its impact on the world economy and just how it effects the alternative energy resources.
OPEC reports that this recent surge within the oil prices occurred at the time when there was virtually no shortage of oil in any way. The cost upsurge followed by volatility has been recognized in all commodity groups including energy, metal or agricultural products with prices doubled since 2005. OPEC reports which it has risen the availability of crude oil by 4 mb/d since 2003 and further increased it by more 1 mb/d with absolutely no shortage of crude oil in the market. (World Oil Outlook, 2008)
Some reasons behind upsurge in crude oil prices – Many elements have led to this volatility in crude oil prices. Keeping aside the demand and provide elements, fluctuations in the dollar value continues to be the primary cause for rise in the values of crude oil. Ray and Olga (2004) reported that oil costs are the cause of major developments on earth economy that can trigger inflation and recession as with 1974 and 1979 which resulted in slowdown of world economy. According to Chandrasekhar (2005), the primary reason for rise in the crude oil prices will be the rapid growth and development of Usa, 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 who have helped the purchase price 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 interest in the crude oil have forced the oil producing nations to produce more crude oil so that you can satisfy the demands. The above figure implies that there has been drastic decline within the oil production of OPEC countries; this demand/supply factor is the key reason for increase in crude oil price touching $140 per barrel.(Hiromi Kato, 2005)
Depending on the BPs Statistical Overview of World energy for the year 2007, it is actually said that need for the entire world touched 83.7 million barrels/each day or 3.9 billion tons/year which is equivalent to 5 times the annual household water consumption. The above figure shows that the improving demand for services has led to upsurge in crude oil price which rocket from mid 2005 till 2008. Depending on the figure, oil price didn’t had any upsurge till late 2000 but because of increased demand in Asian countries, the crude oil price escalated.
Trends in Oil Prices – Roncaglia using Hotelling theory explains the equilibrium cost of the scarce resource net of extraction costs rises over time at the rate which is equal, every year, to the monthly interest. It really is understood using this statement that price of the scarce commodity increases at the rate year in year out with the added rate of interest. The crude oil is a crucial ingredient within the development of world economy. It really is found out that commodity traders are accountable for oil prices who invest in oil ukmaqt contracts by looking at current availability of oil in terms of output, oil reserves as to know what can be obtained and demand of oil, mainly from U . S ..(Kimberly Amadeo) According to OPEC Monthly Oil Market Report released for August 2008, it really is highlighted that OPEC Reference Basket (ORP) rose to $2.89/b or 2% during July 2008 to $131.22/b around 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 down to three month low of $109/ b. According to OPEC, the world economy will grow at 3.8% in 2009 as against 3.9% in 2008. In addition, it 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 suggests that an oil price in 2006 was $50 to $70 per barrel as compared to $50 to $90 per barrel in the year 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 around 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 as much as $118 per barrel during fourth week of August 2008.