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October 22, 2012

Essay on Potential Causes of Rising Global Oil Prices


Potential causes of rising global oil prices
Introduction
The oil is the inevitable ingredient of Energy that plays the highly key role in every economy. It is that type of key element that define the economy trends and the movement of key economic indicators.
This paper is about the prices of oil and its moves, basically as discussed oil prices is key driven element that directly influence on the global economics and politics both. Therefore, here the key causes that surge the oil prices are being discussed.
Discussion
As far as the causes of rising global oil prices are concerned, they are multifaceted. Global economic and political situation both has the big influence in pushing the oil prices. According to the independent observers, the unstable situation of Algeria, Nigeria and Pakistan were the key elements that affected the oil prices; especially the murder of former Pakistani Prime Minister Benazir Bhutto had deep impact on oil prices. This statement seems funny but it is the ground reality that the stability of Pakistan is highly important to formalize and maintain the US policies in the region, especially in the middle-east region.
Besides that, sensitive law and order situation in Nigeria which is the 8th largest oil exporter of the world has another key factor. According to Olivier Jakob (representative of Petromatrix) “With the military and the militant warlords engaged in a violent tit-for-tat, the risk for oil disruptions in Nigeria remains higher than in the past few months,”. (BBC, 2008)
The weak dollar situation is another key factor in surging the oil prices. Because there is a direct association among oil prices and US dollar. The purchasing of worldwide oil has been done in U.S. Dollars. Therefore, When US Dollar devalues because of inflation, oil prices rise. This phenomenon is also known as Petrodollar Inflation.
According the wordings of Anatol Feygin, head of global commodity strategy, Bank of America. "I'm certainly in the camp of dollar weakness driving crude strength,"
Other analyst also commented that "With growing OECD inventories, revised lower demand, increased OPEC production and a relatively mild hurricane season, the dollar seems to be much more the issue."
The demand and supply factor that has the ultimate effects on skyrocketing oil prices. The ongoing continuous development and invention required energy that is produced by using the oil. These development activates increase the demand of oil with limited supply, this demand and supply gap is the basic reason to push up the prices.
Furthermore, upward momentum of big Asian economies such as China is also increase the demand of oil prices to keep continuing its development activities and industries. China left behind the Japan as projecting itself is the second-largest oil consumer in 2003 with increasing oil almost 15% per year.
This increasing demand is very crucial and the play the key role to settle the global oil prices. As per estimate yearly oil demand will be raised to or more than two percent by 2010, on the other words the prospects oil demand could be peaked to 140 million barrel per day from 90 million barrel in coming 25 years of time period. (Reuters, 2007)
The Transportation that uses the major percentage of energy, and it has seen the rapid and highest growth in demand in recent past years. This rapid growth has mostly arrive from fresh demand for personal vehicles (Cars and bikes etc) that are backed with internal combustion engines. According to the Hirsch report, global transportation sector is biggest consumer of oil and energy and 55% percent of oil production is consumed via this sector. In United State of America this rate is approx 69%.
The developed countries, rapid industrialization and urbanization as well as abundant and luxurious life styles are the main driver to increase the oil demand and as discussed earlier that this high demand pushes the oil prices to the peaks. (Iags, 2004)
Population growth is another key factor in surging the oil prices. The global human population is being increased by leaps and bounds; this growing population requires more resources to satisfy their needs and to satisfy their needs energy is inevitable that is largely generated from the oil. According to the estimate the global population is expected to be double by 2030 as it was in 1980. (Dieoff, 2000)
Conclusion
After discussing about the causes of surging oil prices, one element is obvious that has the highest effect on prices, this element is the demand and supply phenomena. This phenomenon seems to play its role in each and every aspect of global issues if it’s analyzed properly. This phenomenon seems to work in global economic and political situation, dollar moves and obviously in increasing demand of worldwide energy.


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