INTRODUCTION                                                                        

In Earlier days man needed Food, Air and Water for Survival but with the Advent of Time and Technology another very Important Factor was added to this list that is ‘OIL’. The price of oil is of critical importance to today's world economy, given that oil is the largest internationally traded good, both in volume and value terms (creating what some analysts have called a "hydrocarbon economy"). In addition, the prices of energy-intensive goods and services are linked to energy prices, of which oil makes up the single most important share. The word petroleum has its roots in the Latin word oleum, which means oil and the Greek word petra, which means Rock. As the price of oleum has soared, the links between fear and petroleum become clear to economists. Fears of heating-oil shortage this winter helped to push the benchmark price of crude over $ 55 per barrel, which is a new record. The spike in oil prices, up by over 60% since the start of the year, is, in turn raising fears for the global recovery. Oil prices have gone up by 30% in the past 12 months and are now well over the $22-$28 target range set by the Opec (Organisation of the Petroleum Exporting Countries) oil cartel. There are two benchmarks for world oil prices. One is the Futures contract - an agreement for future delivery at a specified time; place and price-for the US light crude. The contract is widely used as a benchmark for determining crude oil and refined product prices in the US and abroad. Brent crude oil is a North Sea crude widely used to determine Crude oil prices in Europe and other parts of the World. Together the light crude futures contract and Brent crude are used as the basis for virtually every physical crude oil transaction. The rule of thumb is that a $5 increase in the price of oil sustained over a one-year period lops 0.3% off global growth, according to the International Monetary Fund. Opec agreed to lift production in June and the 44-year-old cartel is pumping about 30m barrels daily, volumes not seen since 1979. Saudi Arabia, the Worlds biggest oil producer and by far the biggest oil exporter is the only Opec country with any leeway to increase production and it traditionally favours lower prices. The Saudis also favour lower prices in order not to jeopardise global economic prospects. OPEC’S Current eleven Members (Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela) Collectively Supply about 40% of the world’s oil output, and possess more than three-quarters of the world’s total proven crude oil reserves. All these member countries are heavily reliant on oil revenues as their main source of income. Since Oil revenues are so vital for the economic development of these nations, they aim to bring stability and harmony to the oil market by adjusting their oil output to help ensure a balance between Supply and Demand.  Zooming oil prices have caused wide spread panic across the world. Given that oil markets are virtually synonymous with energy supplies, governments, central banks and consuming industries have reacted with panic. Meanwhile, nations as varied as India, China and the United States have undertaken efforts to build a strategic stockpile of oil supplies. And, trigger-happy central banks, generally prone to use the stick of interest rates against the slightest hint of inflation, have threatened to use them to counter the latest "oil shock".

Join now!

FACTORS  FOR HIGH OIL PRICES

Market players attribute the sharp increase in prices to various factors. The main factor has been strong economic growth in the U.S and china. At the same time, higher growth in the U.S economy, which devours 25% of all world oil, is driving competition between Asia and the US for the supplies .In fact, China has overtaken Japan as the second biggest consumer of oil after the U.S and their increased consumption has lead to increase in demand of oil. The market has also speculated on shortages arising out of constraints in sources as varied ...

This is a preview of the whole essay