Crude oil is the most important kind of energy for all the countries, mainly for developed and developing countries. The value of crude oil is such that it is used in everyday activity of individual along with the economic development of the country. Lately, the GDP of China and India reveal that the economies of both these countries are growing at faster pace and are the major consumers of crude oil in the world market. Therefore the rise 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 crisis, the recession has taken it down again. It might be exaggerated that increase and decrease within the gas prices the world economy which makes it necessary to study its impact on the world economy and exactly how it effects the renewable energy resources.
OPEC reports that this recent surge in the oil prices occurred during the time when there was simply no shortage of oil at all. The price upsurge accompanied with volatility has become recognized in all commodity groups including energy, metal or agricultural products with prices doubled since 2005. OPEC reports that it has risen the availability of crude oil by 4 mb/d since 2003 and further increased it by more 1 mb/d with absolutely no shortage of crude oil in the market. (World Oil Outlook, 2008)
Some factors behind upsurge in crude oil prices – Many elements have led to this volatility in crude oil prices. Keeping aside the demand and provide elements, fluctuations within the dollar value has become the main cause of increase in the prices of crude oil. Ray and Olga (2004) reported that oil costs are the origin of major developments on the planet economy that will trigger inflation and recession as with 1974 and 1979 which resulted in slowdown of world economy. Based on Chandrasekhar (2005), the key reason behind rise in the crude oil prices is the rapid progression of Usa, China and India, forcing the market to extract and refine more oil from your reserves. It is also reported that global demands have risen by 2.7 million barrels each day during 2004, highest since 1976. Some factors that have helped the purchase 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 interest in the crude oil have forced the oil producing nations to produce more crude oil in order to satisfy the demands. The above mentioned figure implies that there has been drastic decline in the oil manufacture of OPEC countries; this demand/supply factor is the key reason for rise in crude oil price touching $140 per barrel.(Hiromi Kato, 2005)
Depending on the BPs Statistical Overview of World energy for the year 2007, it is revealed that interest in the planet touched 83.7 million barrels/daily or 3.9 billion tons/year which is equivalent to five times the annual household water consumption. The above figure demonstrates that the improving demand for services has triggered upsurge in crude oil price which rocket from mid 2005 till 2008. According to the figure, oil price didn’t had any upsurge till late 2000 but because of increased demand in Asian countries, the crude oil price escalated.
Trends in Oil Prices – Roncaglia using Hotelling theory explains that this equilibrium price of the scarce resource net of extraction costs rises with time on the rate that is equal, year in year out, for the rate of interest. It is understood out of this statement that value of the scarce commodity increases in the rate year after year using the added monthly interest. The crude oil is a crucial ingredient in the expansion of world economy. It is learned that commodity traders are accountable for oil prices who buy oil ukmaqt contracts by considering current supply of oil with regards to output, oil reserves as to be aware what is available and need for oil, mainly from U . S ..(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 as a result of weakening economic conditions, recovery in US dollar and increased OPEC oil exports, the cost came as a result of three month low of $109/ b. In accordance with OPEC, the planet economy will grow at 3.8% during 2009 as against 3.9% in 2008. Additionally, 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 as compared to $50 to $90 per barrel in the year 2007.
The increase in oil price can be seen from fourth week of August 2007 which touched $90 per barrel after 2007. This trend continued during 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 approximately $118 per barrel during fourth week of August 2008.