Analysis of the Impact of Oil Prices on the Global Economy Essay

1. IntroductionThe cost of vegetable crude be fixs the bone of contention recently. crude price seems to be hitting new highs with the regularity of a metronome. It is a bad news for customers who keep to pay more on it. to a greater extent frightening still, this situation may get worse before it come back to normal. No one can exactly predict when the pendulum exit soon swing back again since all uncertain factors existing. From the contribute side of view, the OPEC is the main producer, being prepared to add or start cropion to balance affect. Moreover, Russia is another major producer of oil in the world. They usually produce more when deal more and subtract when demand reduce to control the price of oil. Anyway, speculator is another factor we have to consider in short run. From demand side of view, every field is trying to reduce the consumption on petroleum, the government use revenue enhancement strategy to control the oil price. Further more, government strateg ic oil reserves have to be considered as a factor which causes oil supply shortage. Next, lets discuss in detail how the demand and supply relation affect the price of oil. 2. Microeconomic abridgment2.1 psychoanalysis of Market FormThere are not so umteen oil producers in the world the countries that produce most of the worlds oil have formed a cartel, which called Organization of Petrolum Exporting Countries (OPEC). Those countries controlled near three-quarters of the worlds oil reserve. Within the OPEC countries, they tries to raise the price of its product through reducing in quantity produced and OPEC tries to set production aims for individually of the member countries. From this point of view, oil market belongs to oligopoly which only a few sellers offer similar or identical products. In this form, the producers produce a quantity of output greater than the level produced by monopoly and less than the level produced by competition. The oligopoly price is less than the monopoly price but greater than the emulous price. Therefore, supply and demand theory can be applied in oligopoly form of market. 2.2. Supply and Demand Analysis2.2.1 oil Supply AnalysisSupply refers to both the ability to sell and the willingness to sell by the producer. Actually, umteen factors can determine the quantity and individual suppliesXinput prices, technology, expectations. The quantity supplied rises as the price rises and f... ...by tax. When the oil price goes up, the government will tax more on fuel, vice versa. Therefore, it will benefit the domestic consumers. Other factor is the Iraq influence, policy-making unrest can leave the world without enough oil to go round. 3. ConclusionThere are too many uncertainties existing in the world oil price. According to the analysis, the price may keep difference up due to the shortage of supplies and increasing of demand without considering the speculators factor in short-run. In long-run, the oil price will definitely go down. On the other hand, the price may be peaked already. This will turn up of the speculators unloading their oil inventories, causing prices to fall sharply. Reference1.http//blondesense.blogspot.com/2005/04/crude-futures-crudely-exploited.html2.kjhj3.A large struggle between supply and demand, http//www.occupationwatch.org/analysis/archives/2005/04/a_titanic_strug.html (visited on 29th, April)4.Oil and the Economy, http//www.federalreserve.gov/boarddocs/speeches/2004/20041021/default.htm 5.Time for OPEC to plump up its cushion, http//www.economist.com/agenda/displayStory.cfm?story_id=3759213