Crude oil is the most essential type of energy for all the countries, mainly for developed and developing countries. The value of crude oil is such that it is used in daily activity of individual along with the economic development of the nation. Of late, the GDP of China and India reveal that the economies of both these countries are growing at faster pace and are the major customers of crude oil on the planet market. Therefore the increase in oil prices inadvertently affects the GDP and economy of the countries. During 2008 world witnessed the growth within the prices of crude oil reaching a new high threatening the world economy in particular, thanks the financial disaster, the current recession has taken it down again. It may be exaggerated that increase and decrease in the usa oil the world economy that makes it essential to study its impact on the world economy and exactly how it effects the renewable energy resources.
OPEC reports that the recent surge within the oil prices occurred at the time when there was clearly simply no shortage of oil in any way. The price upsurge followed by volatility has become recognized in every commodity groups including energy, metal or agricultural products with prices doubled since 2005. OPEC reports it has risen the availability of crude oil by 4 mb/d since 2003 and additional increased it by more 1 mb/d with simply no shortage of crude oil available in the market. (World Oil Outlook, 2008)
Some reasons behind upsurge in crude oil prices – Many elements have resulted in this volatility in crude oil prices. Keeping aside the demand and supply elements, fluctuations inside the dollar value continues to be the key reason for increase in the values of crude oil. Ray and Olga (2004) reported that oil costs are the origin of major developments on earth economy that will trigger inflation and recession as with 1974 and 1979 which led to slowdown of world economy. In accordance with Chandrasekhar (2005), the primary reason for rise in the crude oil prices is definitely the rapid growth and development of United states, China and India, forcing the industry to extract and refine more oil from the reserves. It is also reported that global demands have risen by 2.7 million barrels daily during 2004, highest since 1976. Some factors which have helped the price upsurge include US occupying Iraq, Saudi Arabia being attacked by terrorist temporarily affecting oil supplies, speculative investments by financial investors.
Decline in OPEC’s Surplus Oil Production Capacity – Increases in global demand for the crude oil have forced the oil producing nations to produce more crude oil so that you can fulfill the demands. The above mentioned figure shows that we have seen drastic decline in the oil production of OPEC countries; this demand/supply factor is the main reason for increase in crude oil price touching $140 per barrel.(Hiromi Kato, 2005)
Depending on the BPs Statistical Report on World energy for that year 2007, it is actually said that demand for the world touched 83.7 million barrels/per day or 3.9 billion tons/year which is equal to 5 times the annual household water consumption. The above mentioned figure demonstrates that the increasing demand has led to upsurge in crude oil price which rocket from mid 2005 till 2008. Depending on the figure, oil price didn’t had any upsurge till late 2000 but due to increased demand in Asian countries, the crude oil price escalated.
Trends in Oil Prices – Roncaglia using Hotelling theory explains the equilibrium cost of the scarce resource net of extraction costs rises as time passes in the rate that is certainly equal, year in year out, towards the monthly interest. It really is understood using this statement that cost of the scarce commodity increases on the rate year in year out using the added monthly interest. The crude oil is a crucial ingredient within the development of world economy. It really is found out that commodity traders are accountable for oil prices who buy oil ukmaqt contracts by looking at current supply of oil when it comes to output, oil reserves as to be aware what is accessible and need for oil, mainly from United States Of America.(Kimberly Amadeo) Based on OPEC Monthly Oil Market Report released for August 2008, it is highlighted that OPEC Reference Basket (ORP) rose to $2.89/b or 2% during July 2008 to $131.22/b with US dollar weakening and geopolitical tensions dominating the upward trend.
However due to weakening economic conditions, recovery in US dollar and increased OPEC oil exports, the purchase price came right down to three month low of $109/ b. According to OPEC, the entire world economy will grow at 3.8% in 2009 as against 3.9% in 2008. In addition, it reports that developing countries growth rate remains unaffected at 5.6%. India’s growth is up at 7.7% as against to unchanged China at 9.2%.(www.opec.org) The graph represents the trends in crude oil prices from 2006 to 2008. The figure shows that an oil price in 2006 was $50 to $70 per barrel in comparison with $50 to $90 per barrel around 2007.
The increase in oil price can be viewed from fourth week of August 2007 which touched $90 per barrel at the end of 2007. This trend continued in the year 2008 with the price touching to $140 per barrel mark in second week of July. However, some controlling factors and increased export from OPEC suppliers, gave some relief with steep fall in crude oil price as much as $118 per barrel during fourth week of August 2008.