A major reason for increase in oil prices in the last three years is the speculation in the futures market relative to the oil industry. Since mid 2005, oil marketers have been speculating that the oil industry’s future looked dark…
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Such circumstances encouraged speculators to adopt measures that would ensure they made sufficient money to meet future demand. Oil traders have started placing premiums on the prices of crude oil on the basis of instability and uncertainty in the Middle East, which has the largest oil reserves in the world. Moreover, the increasing internal disturbances in countries such as Libya, Iraq and Tunisia as well as the potential threats pertaining to disruption of crude oil production and transportation in this region and in Africa, have led to increase in oil prices. In view of these circumstances, speculators started bidding higher for oil, which again raised prices across the world. Governments of several oil producing countries have not been adopting efficient management practices that have adversely impacted the performance of the oil industry in these countries. For instance, oil producing nations such as Venezuela have been channeling their oil revenues into domestic politicking in order to continue holding on to power. The oil industry in Venezuela and other countries in the Caribbean region have been nationalized and are used by the respective governments to meet their political objectives. Revenues from the oil industry are used to finance social projects and to subsidize gasoline to citizens. Oil revenues are substantially misappropriated in meeting the costs of political agendas, which reduces oil available in the market and thus there is increase in prices. The PDVSA is the only oil company in Venezuela that is having complete stake in the country’s oil functions. In being owned by the state, its management complies with state mandates irrespective of the fact that the company’s long term revenues and profitability suffer a setback. These governments try to make more money out of the oil business by quoting oil prices at very high levels. In African countries such as Nigeria, the increasing activities of rebels and terrorists have deterred investors from investing in the oil industry (Flower, 2010). Such circumstances deprive the sector from employing advanced technology because of which high production levels cannot be achieved and the resultant short supply leads to higher prices. Increasing use of industrial and automobile equipments, especially in developing countries, has led to increased demand for oil. The law of demand and supply provides that the price of any commodity will increase if its demand increases at any given supply level. In view of political and economic circumstances oil producers are not increasing supply of oil adequately in keeping up with increasing demand. It is thus natural that oil prices will increase. In the last few years, the evolving patterns of industrialization and use of vehicles has led to advancement of production processes, which have led to increase in demand for oil. The global demand for crude oil is increasing steadily, particularly in India and China that are undergoing rapid industrialization and development processes (Gupta, 2005). The economies of China and India are slated to grow the maximum in the coming future and they have already started consuming much higher levels of oil in meeting their energy requirements. Increasing per capita incomes in China and India have considerably increased the demand for automobiles and more and more people now own their own cars (Reynolds, 2005). In view of the huge middle class in these two countries, which are the most populated countries in the world, it is apparent that the demand for oil will also increase substantially. The US is no longer the biggest oil consumer and cannot dominate the oil industry by demanding preferential oil prices for
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Interest rates on 10-year U.K. government bonds are expected to rise 10 to 15 basis points to 4.65%, some 40 basis points higher from their lowest level in January 2006 (BOE, 2006, p. 1; Economist, 2006, p. 97).
Interest rates determine the cost of borrowing money.
are used in many industries for heating, lighting, fuelling, road-making, cooking, manufacturing of plastics etc; because it is associated with so many products and their by-products any change in the price of a key product such as oil does cause a ripple in prices of various commodities.
Other than that, there is also a trade-off between inflation and unemployment. If the unemployment rate is low in an economy, this would lead to a higher inflation rate. This is due to the fact that as more people are hired, i.e. an increase in the demand for labour, wages increase and the employers would in turn pass on the cost of higher wages to the consumers resulting in inflation.
In the recent months, oil prices are certainly below their August 2006 peaks. However, there are still concerns that unless we carry out measures for cutting short demand for oil and create extra ability, oil price variability may continue to pose significant risks for the global economy.
The diagram below shows the predicted oil increase in the coming months.
The real price of oil would require the discussion of the involvement of supply and demand in the oil price hike. This has to be done without discussing inflation or the exchange rate mainly because the real price as compared to the money price of something ignores the effects of both of the above.
It has played its role (directly and indirectly) in deadly wars and has a record of supporting wars in which both the winning and losing countries were doomed to disaster. One can never deny the part played by United States in the most horrible wars of 20th century including World War II, Iran-Iraq war and finally the Iraq invasion.
of this vital natural resource; on the other, the realization of the value of this near monopoly resource by the world’s leading oil producers has upset the supply, demand and price equation in a most significant manner. This conflict of interest has resulted in what we are
has met its burden of showing that the general picture of the organization is primarily religious, " Judge Diarmuid OScannlain wrote in the majority opinion. The organizations humanitarian efforts flow from its profound sense of religious mission, and it explicitly and