Factors that Influence the Price of Oil Essay Sample free essay sample

Dubbed as the â€Å"Black Gold† by many economic experts and bookmans worldwide. oil ( more officially referred as Crude Oil or Petroleum ) . has been one of the most of import natural resources in the International Community upon its entryway in the 21stcentury. Indeed. from its first commercial development in the mid-19Thursdaycentury hitherto. oil served as both the drive force and the bargaining tool ( i. e. sticks and carrots ) for every emerging economic system in the universe. In the ultimate sense. at present. oil is critical for every country’s economic growing and economic sustainability. Several wars. peculiarly World War II. have been fought for both the ownership and the entree for oil. Truly. its importance is realized by every Heads of State/Government. As such. it wouldn’t be much of a surprise that within every Government’s national involvements and national dockets come a echt concern for both the entree and the security of that entree to oil ( in other words. the security of imports for non-producing states ) . States that produce oil – or are believed to possess oil ( unconfirmed and/or estimated militias ) – have banded together to organize an International Organization that would function as an superintendent for the ordinance of oil monetary values in the World Market. That International Organization is known as the Organization of the Petroleum Exporting Countries ( OPEC ) . Much like the International Monetary Fund – of which. ensures the stableness of currencies and exchange rates in the World Market – the OPEC. on the other manus. ensures the stableness of oil monetary values in international oil markets with a position of extinguishing harmful and unneeded fluctuations. One of the ways the organisation does this is by enforcing quotas to member states with respects to their oil production per twenty-four hours. As a consequence. the supply of oil neer exceeds the planetary demand for it ; forestalling a lowering of oil monetary values per barrel. In the late-1990’s. Oil Prices were at a low point of about $ 11 per barrel. However. several unexpected events – the September 11 onslaughts. the War in Iraq. etc – have resulted into terrible oil monetary value Hikes in merely less than five old ages. From $ 11 per barrel. oil monetary values skyrocketed to $ 40 and $ 50 per barrel in 2004. Less than three old ages subsequently. oil monetary values continuously experienced farther rushs – with monetary values making every bit high as $ 90 per barrel. In November of 2007. the universe watched closely as oil monetary values reached a record high of $ 98 per barrel ; with states keeping their breath as the monetary values easy and closely climbed to a $ 100. Fortunately. after making a close $ 98. 62. oil monetary values started to fall easy. Several Institutions and Agencies. nevertheless. are non optimistic with future oil monetary values. Most contend that with the go oning pandemonium in the Middle East coupled by the rapid growings of China and India. oil monetary values will doubtless mount to a $ 100 – or even acquire past it. Throughout the old ages. it has been observed that whenever something happens to the planetary oil market. the universe reacts and responds either shockingly or drastically. Indeed. Oil is imperative for every country’s growing and development. As such. it would be apprehensible that whenever the monetary values of oil in the oil market displacement. the universe watches closely. Just how does the monetary value of oil alterations? How is it influenced or. to some extent. controlled? Some sceptics believe that the additions in oil monetary values are really the consequence of deliberate controls from oil bring forthing states. Though rather controversial. there is. as a affair of fact. some truth from the statement. Oil. as some historical events have suggested. can be used as a bargaining tool or a arm against non-producing states. For case. see the Arab-Israeli Conflict of the 1960’s-70’s. Obviously. much of the states in the Arab universe are oil bring forthing states themselves. As such. they have the capableness of really â€Å"controlling† the monetary value of oil by keep backing or cutting the production of oil ; therefore. restricting supply whilst demand additions. As a consequence. oil monetary values skyrockets. Still. this may non be wholly the instance since if oil is intended to be used as a arm. an oil trade stoppage against the supposed enemy should do instead than cutting down on production in order to increase monetary valu es ( as was seen in the 1973 oil trade stoppage against the United States and Europe during the Arab-Israeli Conflict ) . Traveling off from contentions. there are several other factors that either indirectly or straight act upon the monetary values of oil. For one thing. there is the US dollar. In recent times. oil gross revenues have been denominated in US Dollars. As such. alterations in the value of the dollar against other currencies affect OPEC’s determinations on how to bring forth oil and what their quotas should be. For illustration. if the US dollar falls against the Filipino Peso. opportunities are the grosss of OPEC-member provinces that export oil to the Philippines will be much smaller ; hence. ensuing to a pick of either increasing the production of oil or increasing oil monetary values so as to suit their shortages. In 2007 entirely. the US dollar fell somewhat against most currencies in Asia ; particularly in South East Asia. Clearly. this is one factor that led OPEC to increase its oil monetary values ( instead than increase production ) . Still. other factors that led to the addition in oil monetary values is the immense demand coming from developing states – most particularly from Asia. India and China. as mentioned before. are one of the chief subscribers to the demand for oil in Asia. Currently. both countries’ economies’ are turning at an about astronomical rate of 9. 5 % to 10. 5 % severally. As such. it would be rather obvious that a quickly turning economic system would necessitate immense sums of oil for both energy and fuel demands ; plus. both states hold the place for first and 2nd largest populations in the universe. This fact merely perpetuates the inevitable demand for oil more. With all the factors attesting as a premier influence in both the addition and lessening of oil monetary values. likely one of the most of import factors ( and likely the newest to state the least ) of all is the outgrowth of planetary terrorist act. Indeed. since the happening of the events of September 11. planetary terrorist act has been perceived as a planetary menace to both the national security and national involvements of every state in the International Community. Both the usage of force and even the mere menace of the usage of force can be used by terrorists to technically affect or act upon the monetary values of oil in the planetary market. For case. terrorists may endanger an oil bring forthing state to cut down on its oil production. Such a tactic can frighten off possible investors in the industry. Furthermore. it can besides impact the monetary values of major stock markets in the universe. In the ultimate sense. the act of terrorist act can make a series of chained e vents that could decidedly ensue into a immense addition in oil monetary values. Determining the ultimate ground why oil monetary values increases or lessenings is non an easy undertaking. Other than the basic jurisprudence of supply and demand on a macroeconomic graduated table. there are a myriad of other factors that play together about nem con to act upon the monetary values of oil. For one thing. there is war. The presence of war generates a immense demand for oil from its culprits. As such. either monetary values or supply additions in order to take advantage of such an event. Another factor can be the issue of labour and migration. Labor work stoppages from oil bring forthing states can technically impact the production of oil ; therefore. impacting oil monetary values in general. Still. despite the elaboratenesss of understanding the oil market. a batch of bookmans and economic experts still continue to endeavor strongly in understanding it. As said many times. oil is imperative for every country’s economic growing and development. If so. so understanding the oil market is or can be equaled to understanding the hereafter of a state – and that is genuinely a invaluable ability. Cited Beginnings: Al Muhanna. Ibrahim ib Abdul Aziz. â€Å"Oil Price Hike: Reasons and Impacts. † September 2004Arab News( accessed 8 December 2007 ) from hypertext transfer protocol: //www. arabnews. com/ ? page=6 A ; section=0 A ; article=51086 A ; d=6 A ; m=9 A ; y=2004 Mufson. Steven. â€Å"Oil Price Causes Global Shift in Wealth: Iran. Russia and Venezuela Feel the Benefits. † November 2007Washington Post( accessed 8 December 2007 ) from hypertext transfer protocol: //www. washingtonpost. com/wp-dyn/content/article/2007/11/09/AR2007110902573_pf. hypertext markup language Reuters. â€Å"FACTBOX: Why oil monetary values are at a record high. † August 2007Reuters( accessed 8 December 2007 ) from hypertext transfer protocol: //www. reuters. com/article/hotStocksNews/idUSL0135968820070801? pageNumber=4 A ; virtualBrandChannel=0 A ; sp=true BBC News. â€Å"What is driving oil monetary values so high? † November 2007BBC News( accessed 8 December 2007 ) from hypertext transfer protocol: //news. bbc. co. uk/1/hi/business/7048600. short-term memory