Why are gas prices inflated - Essay Example

However following the slowdown in the Asian economy in the late 90’s there was a sharp fall in price when the barrel came down to 10 dollars. This was also because there was abundance of supply since oil from Iraq had started entering world markets after the Gulf War. (Michael Cohen, 2006) Thereafter the Organization of Petroleum Exporting Countries (OPEC) managed to restrict the production levels so as to recover the crude oil prices. Since then the prices have soared and have reached levels where the barrel now costs 150 dollars.

OPEC is group of 13 countries namely, Algeria, Equador, Angola, Indonesia, Kuwait, Iraq, Iran, Qatar, Libya, Nigeria, Saudi Arabia, Venezuela and the United Arab Emirates. (Daniel McDonald et al, October 2005 a. Background There have many instances over the past century when oil prices have suddenly gone on upward trend. Most notable among these were the oil increases in 1974, in 1979 and then after the 90’s which was the period after the Gulf war. In a historical perspective the patterns of oil consumptions over the past twenty years have been plotted on the graph.

(Ray Barrell and Olga Pomerantz, Dec 2004) Most developed countries depend on oil for their economic stability. Data shows that 40% of OECD energy needs were satisfied by oil while for the non-OECD it was 28%. Japan needs close to 50% of its energy needs to be supplemented by oil. However China despite its booming economy shows a requirement of 20-30% of oil for its energy needs. It has been noted that North America and Europe require 40% of oil to cover their energy requirements. (Ray Barrell and Olga Pomerantz, Dec 2004) South American economies on the other hand have quite a booming and robust vehicle industry which has called for large consumption of oil.

Other European countries like Czechoslovakia met 50% of its energy requirements by the use of coal. Data tabulated over the last 30 years show that the consumption of petroleum products have risen from 57.4 million barrels per day in 1973 to 78.7 million barrels per day in 2003 which is jump by 40%. (Ray Barrell and Olga Pomerantz, Dec 2004) Figures have shown that over the last decade while demand for oil shrunk in Europe, the demand for oil in the OECD countries grew by 0.5% per annum on average till 1990.

(Ray Barrell and Olga Pomerantz, Dec 2004) However in the other emerging economies like India and China the demand was robust. Latin American countries like Argentina continued to lag behind because of its huge debt crisis. The changes of production pattern in the European economies were also factors in the slight dip in demand. Production patterns were changed to market economies. While oil consumption showed reduction in Czech Republic and Hungary there was a 2% increase in Poland. After the Berlin wall collapsed, Germany and areas to its proximity underwent recession.

Oil intensity is a term used to define the quantity of fuel needed to produce purchasing power outputs. (Ray Barrell and Olga Pomerantz, Dec 2004) In the last twenty years the developed countries like UK, Germany, Italy and France have shown signs of reduced oil intensity. Countries like Portugal and Spain however showed rapid progress with indexes of higher oil intensity. The countries that were steady over the last decade included Sweden and Austria. Compared to the European markets the US markets performed better.

US required less quarter of oil to generate a unit of output while the oil intensity of Canada fluctuated between high and low. Compared to the three biggest economies in Europe, US have the largest oil intensity. The oil intensity of Japan has been ascertained to be that between the European and the US levels. During the first