Crude oil is an essential kind of energy for all the countries, mainly for developed and developing countries. The importance of crude oil is such that it is found in day to day activity of individual along with the economic development of the nation. Recently, the GDP of China and India reveal that the economies of both these countries are growing at faster pace and are the major 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, the current recession has brought it down again. It could be exaggerated that increase and decrease in the oil and gas the world economy which makes it necessary to study its impact on the world economy and just how it effects the renewable energy resources.
OPEC reports the recent surge inside the oil prices occurred during the time when there was virtually no shortage of oil in any way. The purchase price upsurge followed by volatility has been recognized in most commodity groups including energy, metal or agricultural products with prices doubled since 2005. OPEC reports which it has increased the availability of crude oil by 4 mb/d since 2003 and further increased it by more 1 mb/d with simply no shortage of crude oil on the market. (World Oil Outlook, 2008)
Some reasons for upsurge in crude oil prices – Many elements have led to this volatility in crude oil prices. Keeping aside the demand and supply elements, fluctuations inside the dollar value continues to be the key reason for rise in the values of crude oil. Ray and Olga (2004) reported that oil costs are the origin of major developments in the world economy that may trigger inflation and recession as in 1974 and 1979 which led to slowdown of world economy. According to Chandrasekhar (2005), the key cause of rise in the crude oil prices is definitely the rapid progression of United States of America, China and India, forcing the industry to extract and refine more oil from the reserves. It is additionally reported that global demands have risen by 2.7 million barrels per day during 2004, highest since 1976. Some factors that 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 need for the crude oil have forced the oil producing nations to generate more crude oil to be able to fulfill the demands. The aforementioned figure demonstrates that we have seen drastic decline within the oil creation of OPEC countries; this demand/supply factor is the main reason for increase in crude oil price touching $140 per barrel.(Hiromi Kato, 2005)
According to the BPs Statistical Report on World energy for your year 2007, it really is stated that need for the world touched 83.7 million barrels/each day or 3.9 billion tons/year which is equivalent to five times the annual household water consumption. The above figure demonstrates that the increasing demand has resulted in upsurge in crude oil price which rocket from mid 2005 till 2008. As per 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 price of the scarce resource net of extraction costs rises as time passes in the rate that is certainly equal, every year, for the rate of interest. It is understood out of this statement that price of the scarce commodity increases on the rate year in year out using the added monthly interest. The crude oil is a vital ingredient within the development of world economy. It is actually learned that commodity traders are responsible for oil prices who bid on oil ukmaqt contracts by looking into current availability of oil when it comes to output, oil reserves as to be aware what can be obtained and need for oil, mainly from United States Of America.(Kimberly Amadeo) Based on OPEC Monthly Oil Market Report released for August 2008, it is highlighted that OPEC Reference Basket (ORP) rose to $2.89/b or 2% during July 2008 to $131.22/b along 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 as a result of 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 shows that an oil price in 2006 was $50 to $70 per barrel in comparison with $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 around 2008 with 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.