OIL this, the Organization of Petroleum Exporting Countries

  OILPRICES  SubmittedByTeam10AkshayRaviAnantuSatishAnnieAmruthaBhavanaRajParvathyMenon RIntroduction            Oil is an expensiveresource and the history of this expensive resources starts from the warbetween Egypt and Syria, in 1973 which resulted in quadrupling its price.

The oil price has a huge impact on the worldeconomy.Thefluctuation in oil price affects the world economy because; this scarceresource is highly in demand in most of the countries which had reflected ontheir economy. When oil was on the top of the wars between Arab and othercountries, it directly impacted on US GDP and led them to the recession. When competition and its effectsrose, US started production of oil. Due to this, the Organization of PetroleumExporting Countries (OPEC) startedinfluencing the market shares by producing oils at lower rates. The oil ratesfluctuated in 2008 when the producing countries couldn’t catch up the increasingdemand and also during the wars between Middle East countries.

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In2016, when different countries increased their production of oil the countrieswere outstripped of demand. The competition was tightened by Saudi Arabia to acquirethe market shares from the US oil producers. Now, even though there is a need for balance between demand and supply, therewon’t be a significant positive fluctuation inoil prices.Theoil importers and exporters were and/or are going to be impacted by these acts of fluctuating oil prices. Theimporters will be benefited when the costs fallwhich results in their growing profits whereasthe exporters will be adversely impacted when their income goes down due tostress on oil prices.

Many of the exporter country’s total revenue is from the oil, which will be reflected ontheir GDP directly.            Figure1 shows the history of how oil priceshave increased since 1850 to 2008. The price indicated in the graph is the monthlyaverage spot price of a barrel of West Texas intermediate crude oil, measuredin U.S. dollars. The gray bars in this and all the following figures representrecessions, as defined by the NationalBureau of Economic Research.        FromFigure 1, we see that the oil prices were stable until 1973. In fact, the1970s show two distinct jumps in oil prices: one was triggered by the YomKippur War in 1973, and one was prompted by the Iranian Revolution of 1979.

Since then, oil prices have regularly displayed volatility relative to the ’50sand ’60s.Figure 2 shows the “real” oil price, obtained by dividingthe price of oil by the GDP deflator. This, inturn, removes the effect of inflation andhence gives a more accurate sense of what is happening to the price of the commodityitself. The “real” measure allows you to compare oil prices over time in a waythat you can’t when inflation is also part of the change in price.

You canunderstand that oil prices have changed over time, but large fluctuations occurred more over short periods.        Why therise?The reason for the rise could be because bothincreases in the demand and fears of supply disruptions have exerted an upwardpressure on the prices. The global demand has surpassed every gain in oil production and excess capacity. A majorreason is the rapid growth of developing nations, especially China and India. Thefast industrialization and urbanizationof these economies, has contributed to an increase in the demand for oil. Itis necessary to remember that both the demand for and the supply of oil reactsluggishly to changes in prices in the short run, so very large changes inprices can be required to restore equilibrium if demand should move evenmodestly out of line with supply.Oilprice increases can also stifle the growth of the economy through their effecton the supply and demand for goods other than oil. Increases in oil prices candepress the supply of other goods because they increase the costs of producingthem.

Oilprices and its effects on the worldeconomyOil is very important tothe world economy as it accounts of almost 1/3rd of the world’s primaryenergy supply. It has become an important source of energy and it directly contributesto about 2.5% of the world’s GDP.The oil price movementscan be estimated through an increase in global demand or supply of oil.

Themajor reason for oil prices to fluctuate is basic demand and supply of oil.Natural calamities are also another reason for the oil prices to fluctuate.When oil price increases,it leads to inflation and reduces economic growth. It indirectly affects thecost of products using petroleum and also increases the cost of manufacturing,transportation and other processes which involve using oil. At an individuallevel, when the price of oil increases, people tend to spend less on othergoods and services. Therefore increase in oil prices indirectly affects theeconomy on a larger scale.A drop in fuel priceswill benefit various manufacturing and service sectors, especially sectorswhich are directly or indirectly using oil in their processes. For example,transportation sectors will benefit directly if there is a drop in the oilprice and the people who make use of the transportation will benefit indirectlybecause the cost or transportation fare will reduce systematically.

If there isan increase in oil production, then the oil prices will gradually reduce. Thissituation can also disrupt the economy because it will directly affect the oilcompanies and also the domestic oil industry workers.Indian ScenarioCrude oil prices are determinedby highly dynamic demand-supplyconditions.

India imports around 70% of its crude oil. Hence the fall in oilprices save the country from import bill which in turn narrows the currentaccount deficit. The fall in oil prices helps to manage the finances betterbecause lower subsidies will be imposed on petroleum products which leads to a lower fiscal deficit. Lower oil prices reduceinflation which can be visible as the prices of petroleum products decline.            Indiaimports oil in large quantities. This is an essential commodity and it affectsIndia’s economic growth rate. When crude oil prices in the world marketfluctuate, India’s currency cannot remain stable.

High oil prices result inhigh inflation rates hence overvaluing of India’s currency.  OILPRICES  SubmittedByTeam10AkshayRaviAnantuSatishAnnieAmruthaBhavanaRajParvathyMenon RIntroduction            Oil is an expensiveresource and the history of this expensive resources starts from the warbetween Egypt and Syria, in 1973 which resulted in quadrupling its price. The oil price has a huge impact on the worldeconomy.Thefluctuation in oil price affects the world economy because; this scarceresource is highly in demand in most of the countries which had reflected ontheir economy. When oil was on the top of the wars between Arab and othercountries, it directly impacted on US GDP and led them to the recession. When competition and its effectsrose, US started production of oil.

Due to this, the Organization of PetroleumExporting Countries (OPEC) startedinfluencing the market shares by producing oils at lower rates. The oil ratesfluctuated in 2008 when the producing countries couldn’t catch up the increasingdemand and also during the wars between Middle East countries. In2016, when different countries increased their production of oil the countrieswere outstripped of demand. The competition was tightened by Saudi Arabia to acquirethe market shares from the US oil producers.

Now, even though there is a need for balance between demand and supply, therewon’t be a significant positive fluctuation inoil prices.Theoil importers and exporters were and/or are going to be impacted by these acts of fluctuating oil prices. Theimporters will be benefited when the costs fallwhich results in their growing profits whereasthe exporters will be adversely impacted when their income goes down due tostress on oil prices. Many of the exporter country’s total revenue is from the oil, which will be reflected ontheir GDP directly.            Figure1 shows the history of how oil priceshave increased since 1850 to 2008. The price indicated in the graph is the monthlyaverage spot price of a barrel of West Texas intermediate crude oil, measuredin U.S.

dollars. The gray bars in this and all the following figures representrecessions, as defined by the NationalBureau of Economic Research.        FromFigure 1, we see that the oil prices were stable until 1973.

 In fact, the1970s show two distinct jumps in oil prices: one was triggered by the YomKippur War in 1973, and one was prompted by the Iranian Revolution of 1979.Since then, oil prices have regularly displayed volatility relative to the ’50sand ’60s.Figure 2 shows the “real” oil price, obtained by dividingthe price of oil by the GDP deflator. This, inturn, removes the effect of inflation andhence gives a more accurate sense of what is happening to the price of the commodityitself. The “real” measure allows you to compare oil prices over time in a waythat you can’t when inflation is also part of the change in price. You canunderstand that oil prices have changed over time, but large fluctuations occurred more over short periods.

        Why therise?The reason for the rise could be because bothincreases in the demand and fears of supply disruptions have exerted an upwardpressure on the prices. The global demand has surpassed every gain in oil production and excess capacity. A majorreason is the rapid growth of developing nations, especially China and India. Thefast industrialization and urbanizationof these economies, has contributed to an increase in the demand for oil. Itis necessary to remember that both the demand for and the supply of oil reactsluggishly to changes in prices in the short run, so very large changes inprices can be required to restore equilibrium if demand should move evenmodestly out of line with supply.Oilprice increases can also stifle the growth of the economy through their effecton the supply and demand for goods other than oil. Increases in oil prices candepress the supply of other goods because they increase the costs of producingthem.

Oilprices and its effects on the worldeconomyOil is very important tothe world economy as it accounts of almost 1/3rd of the world’s primaryenergy supply. It has become an important source of energy and it directly contributesto about 2.5% of the world’s GDP.

The oil price movementscan be estimated through an increase in global demand or supply of oil. Themajor reason for oil prices to fluctuate is basic demand and supply of oil.Natural calamities are also another reason for the oil prices to fluctuate.When oil price increases,it leads to inflation and reduces economic growth. It indirectly affects thecost of products using petroleum and also increases the cost of manufacturing,transportation and other processes which involve using oil.

At an individuallevel, when the price of oil increases, people tend to spend less on othergoods and services. Therefore increase in oil prices indirectly affects theeconomy on a larger scale.A drop in fuel priceswill benefit various manufacturing and service sectors, especially sectorswhich are directly or indirectly using oil in their processes. For example,transportation sectors will benefit directly if there is a drop in the oilprice and the people who make use of the transportation will benefit indirectlybecause the cost or transportation fare will reduce systematically.

If there isan increase in oil production, then the oil prices will gradually reduce. Thissituation can also disrupt the economy because it will directly affect the oilcompanies and also the domestic oil industry workers.Indian ScenarioCrude oil prices are determinedby highly dynamic demand-supplyconditions.

India imports around 70% of its crude oil. Hence the fall in oilprices save the country from import bill which in turn narrows the currentaccount deficit. The fall in oil prices helps to manage the finances betterbecause lower subsidies will be imposed on petroleum products which leads to a lower fiscal deficit. Lower oil prices reduceinflation which can be visible as the prices of petroleum products decline.            Indiaimports oil in large quantities. This is an essential commodity and it affectsIndia’s economic growth rate.

When crude oil prices in the world marketfluctuate, India’s currency cannot remain stable. High oil prices result inhigh inflation rates hence overvaluing of India’s currency.

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