Volatility in Oil and Gas Prices for Global Financial Crisis - Essay Example

Download file to see previous pages

Crude oil prices increased to as much as US$ 147 for each barrel in July of 2008 after a major commodity boom cycle caused by increased demands from developing states (UN Regional Commissions, 2009). However, by August of the same year, oil prices plunged due to the reduced demand from the member countries of the Organization for Economic Cooperation and Development (OECD). The threat of recession loomed with the financial crisis severely impacting the worldwide economy (Institute of Development Studies, 2008). To end price falls, the Organization of Petroleum Exporting Countries (OPEC) announced various cuts in their output. Oil prices have since reached more stable levels with prices in the mid US$40 per barrel range.

Based on the Economist Intelligence Unit (EIU), the demand for world oil fell by at least 0.2% in 2008 and 0.4% in 2009 (UN Regional Commissions, 2009). The lower global demand was mostly caused by the lower consumption of oil and gas from developing states with initial 2008 estimates noting a 2.9% decrease in oil and gas among OECD member states. The decreased demand is mostly attributed to declined demand among OECD members is primarily attributed to decreasing North American demands which declined to 2% in 2009 and 1.7% in Europe (UN Regional Commissions, 2009). Among the non-OECD countries, their demand for oil and gas increased by 1.4% in 2009 and 2.3% by 2010. Underpinning these figures was the rise of demand among developing states. However, even where such demands continued to rise, it was not insulated from the effects of the global economic crisis, especially as the economy grew at a much slower pace within the short-to-medium term (UN Regional Commissions, 2009). In general, the rise in oil and gas demand among developing states has been affected by two factors. One is the increase in demands for China and India as well as Arab-exporting states. This implied that the extent to which the oil demand would be affected is mostly based on factors beyond other related elements (Parra, 2010). ...Download file to see next pages Read More