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

1. IntroductionThe price of rock oil be get ins the bone of contention recently. Oil price seems to be hitting new highs with the regularity of a metronome. It is a bad news for customers who have to pay more on it. More frightening still, this situation may get worse before it come back to normal. No one can exactly predict when the pendulum will soon swing back again since all uncertain factors existing. From the supply ramp of view, the OPEC is the main revealr, being prepared to add or subtract production to balance demand. Moreover, Russia is an new(prenominal) major producer of oil in the world. They usually produce more when demand more and subtract when demand reduce to control the price of oil. Anyway, speculator is another factor we have to consider in oblivious run. From demand side of view, every country is trying to reduce the consumption on petroleum, the government use valuate strategy to control the oil price. elevate more, government strategic oil reserves hav e 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 Analysis2.1 Analysis of Market FormThere are not so many 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 round 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 levels for each of the phallus countries. From this point of view, oil market belongs to oligopoly which only a few cuckolders offer similar or identical products. In this form, the producers produce a quantity of production 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 competitive price. Therefore, supply and demand surmisal 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, many 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, political 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 passing 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 p rice may be peaked already. This will result 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 titanic struggle amidst 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