Scenarios for the Importers to Cope Up with the Growing Price of Oil - Essay Example

? Oil With the rapid growth of industrialization all around the world, crude oil can be considered as one of the most important elements in this industrial growth. One can very easily say that it is a very hot topic nowadays. Starting from the very common point of demand and supply of oil in the whole world to the price ups and downs, a lot of interesting scenarios comes out. It goes on with some interesting discussions which create a lot of sense in understanding the global market of oil. Supply of oil in international market The basic oil supplying nations of the world comes within the group called OPEC (Organization of the Petroleum Exporting Countries). The most important oil producing nation in the whole world is Saudi Arabia. It is the biggest oil producing country of the world. In the year 2011, it has supplied 12.8% of global oil (Chakarova, 3). The country has got a oil reserve of 266 billion barrels (Chakarova, 3). Not only Saudi Arabia but Iran is also becoming a world leader in the crude oil supply. Iran is in a state of rapid development because of its oil reserves. Strait of Hormuz, through which 20% of world oil is supplied, is under the control of Iran. If this passage is blocked, then it would be a great problem for the whole world. As a result of which the oil prices will definitely rise. This would also require new path of delivery of oil to other countries. However, there are other countries in the middle-east which has substantial capacity of oil production. But, there are conflicts at the moment between those countries in the middle-east. This is a scary sign for the world because any conflict between these countries would result in huge losses which the other remaining nations of the world would have to suffer. Demand of Oil in international market There is huge demand of oil in the whole world. In this modern era of rapid industrialization, it is very hard to think of running any industry without oil. However, the supply is very less as compared to the huge demand all over the world. Each year this demand is growing leaps and bounds but it is a very critical issue now to think of where from this demand be met. In the year 2004, the OECD countries consumed 48.8 mmbpd and it was 5.2% more than in the year 2003 (Cordsman and Al-Rodhan, 31). This is just a number showing the horrific nature of demand in crude oil in the world nine years ago. But the situation today is even more horrifying. It has also been seen that due to the huge industrialization process in the upcoming economies like India and China, the demand has risen even more in the past few years. The rapid development process in these two Asian countries would surely increase the demand as they themselves do not have any natural source of oil. All they can do is that they can import the crude oil from the middle-east countries. A graphical data is presented below showing the demand of oil based on economic growth from 2001-2025 (million barrels per day) (Cordsman and Al-Rodhan, 34). 2001 2002 2010 2015 2020 2025 LG 78 78.20 98.60 110.00 120.60 132.30 R 78 78.20 93.60 103.20 111.00 119.20 HG 78 78.20 91.10 97.20 102.30 107.70 (Source: Cordsman and Al-Rodhan, 34) Note: LG-low-growth, R- reference case, HG- high growth case. Price of oil in international market Due to the low supply, the demand for the crude oil has increased a lot in the past few years which in turn has raised the price of crude oil in the global market considerably. The developing economies of the world like India, China, etc., they are on the verge of development. As a result they are in huge demand of crude oil for their rapid industrial growth. They need huge supply of crude oil which has made the price of oil go high in the international market. And it’s not only the price of crude oil, but the different levels of duties, processing cost, all these add up to a level which makes it a nightmare for the consumers in this era. The prices of petrol, diesel, LPG going high on a daily basis are the consequences of this. Here is a list showing the annual average domestic crude oil prices (in $/barrel) from 2000-2012. Year Nominal price Inflation adjusted price 2000 $27.39 $37.01 2001 $23.00 $30.25 2002 $22.81 $29.49 2003 $27.69 $35.05 2004 $37.66 $46.37 2005 $50.04 $59.59 2006 $58.30 $67.30 2007 $64.20 $71.94 2008 $91.48 $98.58 2009 $53.48 $57.92 2010 $71.21 $76.01 2011 $87.04 $90.08 2012 $86.46 $87.68 Source: McMahon Major events In the recent times the OPEC countries are involved in forming cartels which has become a major setback for the oil importing nations. This policy of the OPEC countries has raised the price of crude oil in the international market. Also, it is seen at recent times that the price of oil in the Muslim countries are comparatively low as compared to that in the other nations. This is due to the fact that the middle-east countries are in a state of close friendship with those Muslim countries. One can very well say that this is partiality but this is the fact. Conclusion As seen, with the huge global market demand of crude oil with only a few sources of supply available, it is always a hectic scenario for the importing countries to cope up with the immensely growing price of oil. With the bonding between the oil producing nations, the scenario has changed drastically in recent times. This as a result has got an immense effect on their industrial growth. Industrialization, inflation and poverty, especially in the developing countries like India, needs to be looked upon very minutely as they are real matter of concern in a country’s development. References Cordsman, Anthony H. and Al-Rodhan, Khalid R. The global oil market risk and uncertainities, Washington D.C. : The centre for Strategic and International Studies, 2006, Print. Chakarova, Vessela. Oil Supply Crises: Cooperation and Discord in the West, UK: Lexington Books, 2012, Print. MacMahon, Tim, Historical Crude Prices, 2013, 15th May, 2013 from: http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp Read More