What are the impacts of oil prices going up or down? - Essay Prowess

What are the impacts of oil prices going up or down?

What are the impacts of oil prices going up or down?

What are the impacts of oil prices going up or down?

Introduction

There are numerous impacts arising from the increase or decrease of oil prices. This is because oil is one of the most important natural resources in the world today as it is the most widely used source of energy. It is used in the production of electricity needed by all industrial sectors for the production of a wide range of goods and services such as transportation, heating and lighting, communication and so on. It is therefore easy to understand why oil is so important to the contemporary human life and development (Allcott and Nathan 782).

As much as oil is an important natural resource for the development and sustenance of human life, the total oil deposits are being depleted at a fast rate presenting the world with a very significant problem. What if the oil wells run dry and no new oil deposits are found? This problem has greatly determined the degree of oil price fluctuation in the recent past (Becken and James 137). For instance, when oil producing countries suffer political or social instabilities, oil prices tend to go up significantly.

When the demand for oil is higher than its supply, prices register significant increases making it expensive and thus having a significant economic, social and political impact on the lives of people in different societies. For instance, high oil prices drive up the cost of production. This makes the production of goods and services more expensive translating to higher inflation rates (Becken and James 137). This eventually leads to situations where the general populations have less disposable incomes which negatively impact on their quality of life. This essay seeks to discuss what causes oil price go up or down and how oil price increases or fluctuations influence people’s lives.

Aims and Objectives

The aim of this essay is to demonstrate why oil prices going up or down and also how this impacts on the general society and more specifically on people’s lives. The essay’s objective will be to:

  1. Assess how political, social and economic factors in oil producing countries affect the global oil market.
  2. Investigate how oil importing countries tend to influence the price of oil in global markets.
  • Look into how the demand and supply mechanisms in the global oil markets affect societies in different regions as well as the impact this has on the lives of people in oil importing countries.

Methodology

The primary research survey contained seven questions in it and the research involved a sample size of 44 individuals who were interviewed. The people involved in this interview were sourced from service money, wechat and Facebook.

The secondary research question related closely to the primary research answer. Most people agreed with the fact that the supply of oil into the global oil market tended to determine whether or not crude oil prices appreciated or depreciated (Tverberg 30). Thus, the secondary research question seeks to find answers as to the effect global crude oil prices are having as a result of an oil supply overload in the US economy (Ferraro, Kenneth and Barbara).

Literature Review

A great number of factors determine whether the global oil market offers oil consumers with high or low oil prices. To begin with, every economics students understands that in a free market economy, the demand and supply mechanisms serve to determine whether the oil prices are high or low (Ferraro, Kenneth and Barbara). When supply outweighs demand, oil prices tend to go down and vice versa.

Oil producing countries like Saudi Arabia, Kuwait, Iran, Iraq, Nigeria and most recently the US tend to increase or decrease oil output in a manner that presents them with the most appropriate economic advantages available (Allcott and Nathan 788). The social, political and economic aspects of oil producing countries also serve to determine their ability to produce oil. For instance the most recent Iraq war led to a situation where oil production in Iraq fell to an all time low (Singleton 312). As it is a major oil producer, the political and social unrest had a negative impact on its oil producing capabilities. This led to a fall in the supply of oil in the global markets thus leading to a situation where the high demand for oil drove up the oil prices. During this period, a major global economy, China was experiencing a high rate of economic growth such that its demand for oil rose (Selley et al. 65). This was a contributing factor to the increase of global oil prices.

Most recently, the US began fully exploiting it innovative tendencies and technological prowess in the production of oil from its vast shale oil deposits (Tverberg 30). As it was previously a major oil importer, its self reliance on oil led to a situation where the demand for oil in the global markets fell (Selley et al. 69). Oil producing countries such as the OPEC member states refused to cut the supply of oil into the global market for various reasons. This led to a situation where supply exceeded demand thus leading to a fall in oil prices. During the same duration, the growth of the Chinese economy decreased leading the major oil importer to reduce its demand for oil (Allcott and Nathan 784). This also led to a situation where oil prices reached an all time low. The falling oil prices had a positive impact on the economies of oil importing countries thus translating to improved economic growth.

Findings & Analysis

Results from the research involving the 44 research study participants indicated that the going up or down of oil prices does indeed have a profound impact on people’s lives. The first question in the survey is what is related to the crude oil price going up or down. As presented in the literature review, the political, social and economic condition in major oil producing and oil importing countries tends to determine the price of oil (Ferraro, Kenneth and Barbara). Where countries have a greater self sustainability in oil production and greater storage capacity, 62.86% of respondents said that oil prices tended to remain stable for longer in comparison to the international oil prices.

Respondents from oil producing countries such as Saudi Arabia, provided that global oil price fluctuations have little or no impact on their lives. As such, people from oil importing countries more so in the developing countries provided that oil price fluctuations in the global market have a profound impact on their lives (Selley et al. 65). In instances where oil price are going down, this tends to present them with a positive outlook to life. This is because employment rates tend to increase, inflation decreases and essential goods and services become more affordable allowing them to enjoy better standards of living.

For the second question, respondents were asked how oil importing countries tend to influence the price of oil in global markets. 59.15% of the respondents provided that the demand for oil in major economies with a high demand of oil tended to push up the price of oil in the international oil market (Tverberg 30). As such, most cited the increase in economic growth of countries like China and its neighbor India as having a major impact on the overall oil process in the world’s oil markets (Singleton 312). These populous nations have huge industries and massive transportation as well as energy needs leading to a situation where they tend to influence the price of oil upwards. As such, this tends to cause the lives of people in other countries to have to contend with high oil prices thus higher costs of living.

The third question asked respondents as to which part of their lives is most affected by oil price fluctuations. Of the three optional answers in the survey which were, spending, car usage and country’s FOREX rate, their responses were as follows. 68.57% people chose using their car as the most affected .This is because are today considered as integral part of modern life (Tverberg 30). For instance, respondents from Europe provided that in addition to the rent or mortgage payments, the biggest weekly spending often go to car usage (Tverberg 31). More so, more people all over the world are opting to purchase cars thus leading to an increase in the demand for oil. In essence, high oil prices tend to affect the transportation aspect of people’s lives as air, land and sea transport becomes more expensive translating to higher prices of necessary goods and services.

Conclusion

In conclusion this essay argued the impact of oil prices going up or down and how it is related to people’s daily life. Firstly, it has present information as to why oil prices tend to move up or down. This has provided insights into the fact that most nations as well as their economies and general societies have little influence on the prices of oil in the world’s markets. Therefore, political, social and economic factors in major oil producing countries as well as in major oil importing countries tend to have a greater impact on the global oil prices.

By extension, this translates to countries with weaker economies conforming to the pressures on the oil markets resulting from major oil importers and exporters’ market interactions. Secondly, this essay has underscored the influence that major oil importing countries have on the overall prices of oil in the world’s oil markets. Lastly and most importantly, this essay has provided valuable insights as to how the oil prices as determined by major importing and exporting economies tends to affect the lives of people differently.

For instance, this essay has established that in countries where the economies are relatively small, the lives of the people in these societies have to contend with the prevailing situation in the international oil markets. As such, they experience greater costs of living when oil prices are high as the cost of production increases, inflation rates rise, transportation costs realize price hikes and unemployment levels increase. The opposite is true when the international oil prices go down. Therefore, one can comprehensively conclude that oil prices have a major impact on the lives of people living in oil importing countries as opposed to those living in oil exporting countries whose lives are more stable regardless of the international oil prices.

Works Cited

Allcott, Hunt, and Nathan Wozny. “Gasoline prices, fuel economy, and the energy paradox.” Review of Economics and Statistics 96.5 (2014): 779-795.

Becken, Susanne, and James Lennox. “Implications of a long-term increase in oil prices for tourism.” Tourism Management 33.1 (2012): 133-142.

Ferraro, Domenico, Kenneth S. Rogoff, and Barbara Rossi. Can oil prices forecast exchange rates?. No. w17998. National Bureau of Economic Research, 2012.

Selley, Norman, et al. The New Economy of Oil: Impacts on Business, Geopolitics and Society. Routledge, 2013.

Singleton, Kenneth J. “Investor flows and the 2008 boom/bust in oil prices.” Management Science 60.2 (2013): 300-318.

Tverberg, Gail E. “Oil supply limits and the continuing financial crisis.” Energy 37.1 (2012): 27-34.