The Cause and Effect of Rising Oil Prices

College
Essay
Miscellaneous
Pages 5 (1255 words)
Download 0
Since 1998, the world price for crude oil has spiked from a historic low of $15.70 per barrel to see a 1000 percent increase to near $150 per barrel in the summer of 2008. This sharp and rapid increase has often been explained in terms of supply and demand and blamed on the US overuse and the rising demand in the developing countries…

Introduction

Industries are forced to scale back production to keep costs in line. Worldwide inflationary pressures push prices higher around the globe. These actions and reactions fundamentally change the way the world works, plays and lives. The necessity of oil drives prices at the margins and the resulting shock pushes consumers and industry to scale back use, limit the demand, and create alternatives for petroleum products.
Oil is a commodity that has a demand driven by necessity, is of limited supply, and can therefore be priced at the cost that the last, and highest bidder is willing to pay. This aspect of oil makes it a commodity that is naturally volatile in price. While the news and fear mongers warn of a worldwide oil shortage and a bottleneck in refinery capacity, this alone cannot explain the sharp increase in prices. In 2007, the world demand for oil was 85.7 million barrels per day and a refinery capacity of 85.4 million barrels per day (Doggett 2008, Worldcrudeoilrefiningcapacity 2007). In addition, the modest increases in demand have been linear and not a reflection of the volatile spikes in price. ...
Download paper
Not exactly what you need?

Related papers

Macroeconomics-oil prices
The dependence of the economy on oil has reduced considerably with the strengthening of the IT and services sectors. Although the rise in prices of oil has been large it has not been sudden and the economies of the major economic powers have adjusted to the change. The rise in oil prices will definitely result in an across the board change in prices and thus inflation rates will continue to be…
Rising Oil Prices
Fuel prices have risen and affected every nation in the world since the early years of this decade. Nandia Mongia (2008) reports that crude oil prices have increased in the world market from 22 U.S. Dollars up to almost $90 U.S. Dollars per barrel. This affected the prices of petroleum products like diesel, kerosene, propane, and gasoline and hit lower-income households. Figure 1 shows the rising…
Gas prices
(How Gasoline Works)…
The Cause and Effect of Rising Oil Prices
Industries are forced to scale back production to keep costs in line. Worldwide inflationary pressures push prices higher around the globe. These actions and reactions fundamentally change the way the world works, plays and lives. The necessity of oil drives prices at the margins and the resulting shock pushes consumers and industry to scale back use, limit the demand, and create alternatives for…
Oil Prices Essay
The oil market has highly inelastic demand and supply especially in the short run mainly because there are a few if any substitutes for it. Scientists have attempted tirelessly to create solar and CNG run cars and there has been an attempt to harness nuclear power at all levels of the industrial use.…
Impact of Oil Prices on the US Economy
Although the rise in prices of oil has been large it has not been sudden and the economies of the major economic powers have adjusted to the change. The rise in oil prices will definitely result in an across the board change in prices and thus inflation rates will continue to be high. However the likelihood of this leading to a recession in the US and other large economies of the world is remote.…
Subprime Crisis and Oil Prices
But since interest rates rose and the worth of houses dropped in the last two years in the crisis country, refinancing has become more difficult, leading to more instances of foreclosures and defaults.…