Oil prices have been a wide issue because of the discrepancies when it comes to its distribution, inconsistent prices and other related factors which play a significant role for the world market. From the 1980s up to the 2000s, the inflation accustomed the prices of a barrel for just $25/barrel and eventually increased up to $60 by 2006. The increase in oil prices is due to the factors that largely attribute to the world market activities. The United States Department of Energy reveals that the petroleum reserves, the tensions in the Middle East and oil price speculation are now declining. During a period of time, there are specific geo- political events and natural disaster which are not directly linked to the global oil market and there is only a short term impact on oil prices. Hence, this makes the oil prices to be inconsistent (Rutledge, 2005).
What happens in political affairs and natural disasters are not actually explicitly linked to the global oil market like the tension that happened in Israel and Lebanon. Recession instead is seen to be the major cause of the inconsistent oil prices which really have a great impact in every country.
Knowing the roots of these issues should detail out important topics and should start from the world’s largest oil-producing country which is the Kingdom of Saudi Arabia. Initially, Saudi Arabia dominated the export of petroleum in the world. It saves the economy of Saudi Arabia and its oil accounts for almost the majority of the percentage of the exports and 1/3 are almost for the government revenues.
When oil reserves were discovered in 1938, it gave Saudi Arabia economic prosperity and a good deal of leverage in the international market. However, as the world market and market demands increase, oil prices are very much affected specifically when the main country is also affected by the global crisis that is happening. Extensive understanding of the gas price in Saudi Arabia is very much important in order to emulate the effects and other significant factors that may largely affect the world. Particularly, comprehensive writings should also be scoped with regard to the issues that relates to Saudi Arabia as it prevails to have the most important role in the oil prices issue.
The economy of Saudi Arabia obviously relies on its oil exports and the industry is composed of about 45% of the country’s Gross Domestic Product (GDP). It has 260 billion barrels of oil reserves that takes 24% of the total petroleum reserves of the world. Saudi Arabia uses privatization as their way of innovation like developing the telecom industries. They initiated their development in 1999 through the privatization of electric companies. However, water shortage and fast growing population may hold back the efforts of the government to add autonomy in agricultural products (Bailey, 2008).
Saudi Arabia has experienced an important tightening of oil revenues that are put together with a soaring rate of population growth. GDP of the country have increased over the years and are seen to improve which depicts inflation. It has also set off anther oil boom that pushes Saudi Arabia’s budget surplus into $28 billion during the year 2005 (Bourland, 2008).
One of the policies imposed by the OPEC is the restrictions of oil production that accord with the country’s oil reserves. This implies the idea that more reserves you have, the more OPEC will allow a member to produce oil for the world market. The proven reserves of Saudi Arabia have revealed some alterations since the start of 1980 taking account of having an increase of 100 billon barrels in the midst of 1987 and 1988. It has been suggested by Simmons (2008) that Saudi Arabia is largely overstating on its reserves and sooner or later may affect on production declines. In order to expand the economy, Saudi Arabia introduced a new city located on the Western Coast with the investments that exceeds $26.6 billion.
Organization of Petroleum Exporting Countries
OPEC or the Organization of Petroleum Exporting Countries is an organization composed of Saudi Arabia, the United Arab Emirates, Venezuela, Qatar, Nigeria, Libya, Kuwait, Iraq, Iran, Ecuador, Angola and Algeria. One of the main goal of OPEC is to determine the best way of protecting the interests of the organization in an individual manner and generally as well. It trails the means of guaranteeing the stabilization of the prices in the international community taking account the perspectives of screening the harmful and unimportant fluctuations. Also, concerning about the interests of producing nations all the time and the significance of securing a stable income for the producing countries are also included in the goals of OPEC. In addition to, regular supply of petroleum to the consuming nations are given importance in the objectives of OPEC (Ovendale, 2004).
As the major organization handles the oil produces, the impact of OPEC on the market has been very much disparaged. A lot of members of the organization influences the world and sets off high inflation on both developing and developed countries when oil stoppage has been experience in the oil crisis that happened way back 1973. The authority of OPEC in manipulating the oil price has somehow decreased because of the successive discovery and development of wide oil reserves in Mexico, North Sea, Russia and the market modernization. OPEC directly influences the oil prices in major oil producing countries such as Saudi Arabia but still, the kingdom holds its own freedom to decide on the prices of their product. OPEC has the control though for the oil production of Saudi Arabia which depends in the capacity of the country’s oil reserves. This is the way of the organization in maintaining the oil reserves into its equilibrium as it is predicted to have a shortage of oil in the near future. This is controlling oil production in order to avoid incapacity of supplying oil in the future which indeed a good point.
Global oil prices have been strongly impacted as the members of OPEC became open with regard to the issue of probable conversion of the cash reserves to the Euro from the standard US dollar. It is widely reflected on the shifting prices of oil that OPEC influences the determination of prices in the international market. Taking account the scenario where in the energy crisis in 1973, it made OPEC to decline in shipping oil to western counties which had backed up Israel in the Yom Kippur War. The decline brought an increase in the oil price that lasted for five months, initiating in 1973 until the following year. It was then agreed by the OPEC nations to increase the price of the crude oil b y 10% which at that time, OPEC nations were composed of newly nationalized oil industries (Ovendale, 2004). They have participated in the new international economic order to be started by the coalitions of main producers. The first OPEC summit apparently aimed for the progress of the whole economy. Generally, the results give an idea that OPEC reveals to be an alliance for accepting the output rationing to be able to maintain the price.
Considering the fact that the international market is widely dominated by the US dollar, the changes that are happening in the value of USD compared to other world currencies largely affects the decisions that the OPEC settles into the issues of the amount that they should produce. Just like for example, the failure of dollar because of other currencies, the member of OPEC may have smaller revenues and in other currencies for their oil which causes sensible cuts in their ability to purchase.
Analysis of gas price in the last 5 years (2004-2008)
Gas prices in the last five years has been inconsistent. During the middle of 1980s up until the 2003s, the inflation adjusted price of a barrel broadly costs $25 per barrel, which is in NYMEX. The beginning of 2004 gave the price of more than $40 and $50. A progression of events made the prices to go beyond $60 by the year 2005 and then goes $75 per barrel in the midst of 2006. The prices then turned down to $60 per barrel in the early part of the year 2007 just before going up $92 per barrel on the same year and rise up to $99.29 on December of the same year. The first half of the year 2008, oil prices are usually listed for its high price. It even reached $103.05 per barrel on the second month of 2008. In the middle of the year, prices hit $141.71 per barrel which is observed to increase in just four months. According to the reports in Monthly Bulletin entitled “Saudi Arabia and the Global Financial Crisis”, “The most recent price per barrel maximum of $147.02 was reached on July 11, 2008. After falling below $100 in the late summer of 2008, prices rose again in late September. On September 22, oil rose over $25 to $130 before settling again to $120.92, marking a record one-day gain of $16.37. Electronic crude oil trading was temporarily halted by NYMEX when the daily price rise limit of $10 was reached, but the limit was reset seconds later and trading resumed. By October 16, prices had fallen again to below $70, and on November 6th oil closed below $60” (Bourland, 2008). The report showed that oil prices do not settle for a specific rate which makes it difficult for the countries to adjust. The price of $147.02 is very much high compared to the previous prices which adds to the crisis felt by the world economy.
The Iraq war made them produce lesser oil in 2004 which affects supply of oil in the market. Oil prices in 2005 have been shifting between $50-59 because of the money inflation. The beginning of 2007 paved the way for increased oil prices which basically fell into the expectations of having a relatively high rate of $90.02 in October, 2007. These increases are accountable for the conflicts between the eastern Turkey and the decreasing power of the U.S dollar. Oil prices went down for quite some time with the hopes of increased U.S stocks. But, prices are still rising again up to the peak of $92.22.
Because of the unfavourable United States dollar, oil price have continuously reached its high rates. On March 2008, United States has been accused by OPEC for the increase of oil prices. It actually reached $111 per barrel which is very much obvious to be unfavourable in line with the recession that happens in the economy of United States (Bailey, 2008). However, the increase of prices did not settle for the last price in March 2008 and even increased for almost $120 with varying points (Ovendale, 2004). It is very obvious that the prices are not set to a particular rate which largely depends on a lot of factors in the economy. USD greatly influences the determination of prices as well as the economy of the oil producing countries.
Actually, the price of producing petroleum did not come to its peak. The increases of prices have overlapped with profits for the oil industry. Considering the meeting that happened in 2007, it is more likely to reveal a desire of a stable price though it is quite high. This is considered because it would give enough income for the oil producing countries. However, this also attributes to the factor that it would help to avoid negative impact for the economy of oil consuming nations. This implies a balanced trade between the producers and consumers of the oil market in the world. Oil revenues somehow are manipulated well if they will allow the developing countries to go on their process of development by giving them assistance and responding to their needs.
Putting a highlight on the major oil exporting countries are quickly developing and taking for consideration that countries use more oil as their own local product; less supply of oil is more likely to come out in the international market. With this regard, it became effective to lessen the oil that is available for trading that causes the prices of oil to be on its higher rate. Thus, for the last five years, oil prices have been significantly on its price inconsistency which resulted to be at its peak. Generally, prices reveal varied shifts and its roots are mainly from the state of the oil producing companies.
The chart below shows the shifting of oil prices in May 2004-May 2008. It is seen that the price goes up and in reality it almost reached $140 above in the year 2008. Prices began to fall down after the year 200b though and still in the process of settling for a particular favourable gas price.
Before the year 2009, prices of oil had fallen to $110 and even lower which is said to be because of the demand reduction in the world. It is also revealed that the oil market had been drastically changed in the year 2008 as it was not anymore related to the natural disasters. Indeed, as prices fell below $110 in some of the markets, OPEC was prompted to look after the $100 price level. During the last months of the year 2008, the prices continued to emerge with the global demand growth. OPEC then planned to lessen their production of oil by 2.2 million barrels a day although they admitted their declaration of lessening production in October which only has a compliance rate of 85%.
While recession is predominant in the economy, the oil prices are still in the shifting curves and did not have a specific price to be settled in. This scenario was then told by the International Energy Agency to be the outcome for investing in the new oil sources which is said to be deficient. Thus, this really appears to be risky because shortage is very much felt. And as the future comes in, the supply of oil and its production is seen to come to its end and very few can only continue its production for the lack of sources. In order to produce for oil in the future, hence it more likely requires the oil producing countries to invest a lot more than the present investments that they put up into it. Not having enough new investments for the planned projects could apparently result to a more serious supply issues than what has been experienced in the first years of 2000s. For the reason that the declines for the sharpest production had been visible in the developed countries, IEA said that the biggest growth for the production was assumed to be from the smaller projects in OPEC states which may raise the world production share from 44% to 51% from 2008 to 2030, respectively. It has also been highlighted that the demand from the developed world may have also reached its highest rate; hence the future demand growth was likely to come from the developing nations like India, China and the Middle East (Bailey, 2008). However, there are researchers that argue with the propositions of IEA in determining the hardships of increasing production even with a great increase in investing for the exploration and production, most especially for the developed petroleum regions.
Why oil prices are changing
Monetary inflation basically means the way of distinguishing the term inflation in the sense of supply and money. This can be attributed through the association of the tools and how price and monetary inflation are related to. There is a debate with regard to the relationship of demand and supply for this issue though, and is more likely to affect the money which pertains to the USD as it prevails to be the main currency used in trading oil. The price of oil is relatively influenced by the value of the US dollar. This has resulted to the consideration of some economists that the main point of gaining from the sale of oil may be unable to find value in the future if the currency loses its value (Bjornland, 2001).
Comparing the oil prices to the different currencies considering the varying moods of the exchange rates clearly states that the price is not really linked to the value of the dollar or to any other currencies. This depicts the comparison of oil price to gold price and also oil price has been negatively associated to the value of the dollar since the 1970s. This also says that the oil price greatly influences the value of dollar and the value of dollar as affects the oil price (Hammes and Wills, 2005). Other countries depend on their large industries, and money inflation in this sense greatly affects the values of the currency. However, there are still declarations that the shift of oil price from $25-140 is because of the dollar devaluation.
Speculations for the finances exist when the investors risk for the future purchases. This means that financial speculations happen when an investor is willing to purchase something for a future delivery for a certain price. The maturity of the contract may be apt to the original customer or may be settled through paying for cash. A lot of outstanding economists have disputed that financial speculation is not really a reason of rising oil prices; nevertheless more than a few assertion have been made incriminating financial speculation as the most important cause of the increases in price. Almost half of the increases in the oil prices are seen to be because of the supply in the market. Indication was provided to a U.S. Senate committee in May which says that the demand shock from Institutional Investors had been raised by 848 million barrels for the last five years, which is the same to the increases in demand from that of China.
According to Bjornland (2001), oil prices should be analyzed properly in order to straighten out the effect of oil price shocks from the demand and supply shocks. But, an approach in tolerating the ideas of shocks like the monetary disturbances in driving inflation can be used, with the consideration that the shocks are unbiased output in the future.
In May 2008, an article pointed out that the oil future transactions on the NYMEX almost reflects the price of oil increases for a many periods of year, though however the article accepted the idea that the increased investment might follow the rise of prices. Generally, the probability of the financial speculators falsely inflated the oil market, the U.S. Congress started hearings in June 2008 in order to find out if actions have to be restricted on the pension funds, investment banks and other investors that are said to trigger the prices up.
Accordingly, there has no shortage for the gas in more than ten years now which contradicts the idea of having lack oil production. Saudi Arabia agreed that oil prices should not be more than the price of $70 and the demands are not that high in other countries to be able to experience shortage or lack of oil production. However, the stock market of China is reflecting a slow down for almost half of its whole stock market. Hence, this perspective is still capable of considering the price speculations for the oil. Significantly, this indeed is true because there really has no shortage of the oil so spectators should not say that oil price increases due to the tightening that happens in the world market. In addition, if the oil prices was restricted and are sold for only $40- $80 per barrel, then this obviously means that a shift for the prices is possible depending on the supply and demand. This may be fair thinking that if there are lots of supplies; prices do not have to go down $40 which will still give a just profit to almost oil industries. If the oil production reaches its short supply, prices would then be controlled to almost $80 which is more acceptable in the world market. Researches about the oil market have been conducted and it was released which have said that the speculations do not really impact the market heavily. It stated that more than %60 billion was put in oil during the first six months of the year 2008 that helped in triggering the price per barrel from $95 to $147 per barrel.
Demand and Supply
Another reason why oil prices are changing is the demand and supply. The growth of demand is seen to be the factor which is typically seen in the developing world but the United States is the largest consumer who uses petroleum. As the demand of the US goes higher, consumption of the petroleum takes the big portion of oil supply in the world market. As other countries develop, there is a large need for the use of oil. Prosperous countries like China and India are rapidly consuming more oil as their economies emerge. Oil consumption in China increased by 8% every year starting 2002 and in 2008, auto sales in China were assumed to increase by as much as 15-20%. This is through the increase in five years with the rate of ten percent. In addition to, another vital factor on the petroleum demand is the population growth. Taking for account the population of the world, because the growth of population is faster than the oil production, it reveals that the production per capita have reached a very high rate in 1979.
World crude oil actually increases every year with the maximum rate of 3.4 during the year 2003-1004. It is known that the demand will be higher for the developing countries as they will be needed for the development of the industries in the countries.
Price increases are seen to be slow in the growth of oil supply. This factor contributes mainly to the changes of oil price and has been persistent since the production of oil is covered up by the new discoveries in 1980. Considering the fact that the global oil production will turn down for some instances which will lead to minimize the supply is the major long-term cause of rising prices of oil. Fossil fuel is also restricted and the residual available supply is used more often in each year. The available reserves have become more technically hard to dig up and thus this appears to be more costly. Apparently, the reserves will be sufficient to the economy in pulling out at exceptionally high prices. It is regarded that the prices could go on to increase for the foreseeable future until a new market balance is reached where in a supply point persuades the demand of the world (Hammes and Wills, 2005).
Even though there is a controversy when it comes to the timing and form of oil, there are still people that accept the ideas of production which is reasonable. However, it is noted that before the prices of oil increased in 2008, some commentators have said that the awareness for global warming and new sources of energy basically depicts that the demand may fall before supply which makes the diminution of reserves not an issue anymore. In addition, commotion in the Middle East most especially Saudi Arabia, the world’s largest oil-producing region, it has influenced the trading to lessen exports. This is largely seen in the civil unrest in Iraq after the invasion in 2003. Venezuela also has experienced strikes and political turmoil and a growing volatility in West Africa exists.
The impact of recent economic crises on gas price in Saudi Arabia
Arguments with regard to the effects of the economic crisis on the gas price in Saudi Arabia. Some says that an oil- price spike can make a recession which is comparable to the 1973 and 1979 energy crisis. Perhaps, this time would be a worst situation like a global crash. The prices of petroleum that increased are somehow depicted by a lot of products particularly the petroleum fuels. High oil prices from the 2000 until the 2008 primarily suggested a financial crisis which is reflected on the start of 2008 (Reynolds, 2005).
In Saudi Arabia, the impact of economic crises made the country to embargo oil production and its effects are seen easily. OPEC required the oil companies to add payments radically and the price of oil had been four times larger by 1974 for about $12 per barrel. The increase in the oil price had actually striking effect on the nations who export oil as well. For the Middle East countries, which are categorized to be under the industrial powers are now taking the administration of an important commodity which is oil (Mouawad, 2007). The usual flow of capital inverted as the oil- exporting nations gathered huge assets. One good thing for the help that had been assisted by the assets is the extension of these resources for the underdeveloped nations in the world. Economies of other nations had been helped especially those which are affected by the increase of oil prices in the world market. Also, raw materials in the middle of lessening Western demand for their goods are being experienced. However, a lot of massive arms are adopted by the Middle East which just aggravated the political tensions.
The member of OPEC in the developing world suspended the viewpoint of nationalization of the holdings of the companies in their countries. Much importance is given to the Saudi Arabia which has acquired the operating control of Aramco. Under the administration of Ahmed Zaki Yamani, it has been completely nationalized during the year 1980. Considering that Saudi Arabia has a lot of revenues, it has courageously taken the plan for the development of industries in the country which entitles $250 billion expenditure. This largely helps Saudi Arabia to emerge in other industries as well as develop a contingency plan which will increase the production of oil in the future.
The long term effects of the crisis are generally depicted. Although Saudi Arabia dominates the oil production in the world, it still does not control the global economic crisis and the changing oil prices which are seen to be one of the most important factors that may help the people if this would be lessened. Lesser oil prices significantly depicts a balanced trade for the world market as it reaches the large corporations that administers the oil selling in different countries. Global crisis gets serious as the recession in the United States continue because United States directly influences the standard currency value and hence affects the terms of trading.
Actually, as the global crisis gets serious it does not affect Saudi Arabia as much as it affects other oil consuming countries in the world (Hammes and Wills, 2005). The global economic crisis might have a helpful impact on the Saudi economy because of the decline in the prices of the commodities caused by the international economic dilemma, and noted that stability of prices is one of the most important goals of the Saudi economic policy. The growth may optimistically make a way realize about a lot of goals which includes balance in regional development, improvement of the payments balance at the long term and also making job opportunities available. The economic crisis in industrial countries somehow affects the demand on oil in Saudi and this is where the economic crisis impacted the country. The economists focused that the economy of Saudi has enough foundation in order to survive the current crisis. The importance of the coordination between the economic officials in Saudi Arabia and other countries to make good proposals to deal with the impact of the global financial crunch has been put on a highlight as well.
Indeed, there is no country in the world that is free from the effects of the financial crisis and recession. The Kingdom of Saudi Arabia has altered the economic policy with regard to the restriction of the inflation to the maintenance of the confidence in the fiscal senses of the country. It is assumed that oil prices will importantly be lower than the preceding lessened production and it will intensify the impact on oil revenues. The details in the domestic and foreign companies when it comes to its finances are seen to be more expensive in supporting the businesses in Saudi. The progress in the economy is seen to slow down in line with the dilemmas of the finances and lesser profits can cause a delay to the future innovations or projects that the country has. The decline in the oil revenues may result to the control for a large future investments and present surpluses. Inflation is also seen to the visible for the next years in the riyal currency and the prices of commodities.
Thus, the main economic data will look pathetic in 2009 compared to the previous years. However, this does not signify the end of economic boom though. Vitality in the local economy has been pushing the economy forward for the last few years and people think that the healthy growth scenarios in the non-oil sector will be able to maintain even at a slower rate than what has been declared. The preparations for the decline of the projects that are planned are at hand if in case the negative assumptions would be on the way.
Oil Revenues and Industrialization
A consequence for the changes in the oil industry over the past years has been in the center of attention and it primarily points out to the industrial development of the oil producing companies. Through the conformist ideas, the most important obstruction to industrialization amongst Third World countries has been a harsh lack of capital through the foreign exchange reserves (Rutledge, 2005). For the point of view of the oil producing countries, the sprint of revenue to their national accounts materializes to take away this restriction. The Shah of Iran shows that the country is becoming a major industrial power in just a few decades. Saudi Arabia proclaims though that a five-year development plan which will cost $142 billion is at hand.
Oil producing companies boasts for their successful future due to the plans for industrialization which has the foundation of having increased oil revenues. For the industrial countries such as United States (Rutledge, 2005), the panorama are treated explicitly as the set up of a new era that visions a more productive economy and a better standard for living. This is basically dedicated to the oil producing countries and exceptional opportunities for getting higher corporate sales and investments in the process. Inflation made Saudi Arabia one of the few places where large investors are making a comeback.
The concept that oil revenues should be used in order to develop and branch out an economy for the producing country is not actually new, specifically among drastic nationalist political forces in the oil producing states and especially the Arab world in general (Bairol, 2007). With regard to the questions of determining the price and national restriction of resources, questions about the leadership on the industrialization was greatly considered by radical nationalist regimes in countries such as Iraq or Venezuela. These countries possess ratio of oil reserves to production and were quite in the line of shrinking and hence have to think of the not-too-distant day for success. Oil revenues therefore are focused on the production of oil producing companies and largely accounts for the demand of the industrial users which are also the largest oil consumer companies in the world (Rutledge, 2005).
The optimal gas price in Saudi Arabia in 2009
Talking about the most favorable prices of gas in Saudi Arabia for the current year would basically pinpoints that the kingdom is still the lowest cost producer of oil in the world. However, a definite description should be made in order to define a low cost which will be focused on and at a certain period of time. Years have passed and the country is undeniably referred to as the lowest cost producer of oil in the world for the reason of they have already settled for the fields. The only expenses that apply to the country are the operating expenses in order to pull out the oil. With that consideration, Saudi Arabia does not pay or they are not charged for the energy that they consumes like the electricity and water. It can be said that nowadays, false costs are prevailing in the market. As observed, it was announced that Saudi Arabia will be putting up $50 billion in 2008 and 2009 jus to try and form a million and a half barrels. But considering the notion that if they are charged with the water and electricity that they are using, cost of oil will actually still go high as oil production is not really at low cost at all. Hence, what prices involved in this matter does not really reveal the exact costs and expenses that they have used and this somehow appears to be fabricated (Rutledge, 2005).
Estimation of the costs for oil production can just fall into the rate of $10-20 per barrel taking for account the free usage of electricity and water. Actually, there have been a lot of issues accompanying the optimal gas price in Saudi Arabia which directly affects the world market for oil. It is also believed that Saudi Arabia has additional capacity of oil reserves. However, some commentators say that if they have a spare capacity can not be categorized with what the country has, it is just an oil reserve that can give out as much oil as it can and not for a heavy production of oil for the whole.
The relationship of Saudi Arabia and OPEC is also an important factor to consider for the determination of oil prices. It had been distinguished that Saudi Arabia largely differs from other oil exporting countries as to what OPEC regards. The differences are said to reflect the social political bases of the regimes which also have their different social resources and the origin of the alliances with the industrialized capitalist and large oil corporations. The fundamental Saudi position, as pronounced by oil Minister Zaki Yamani was actually not new to all anymore. In retrospect, the occasion of the previous OPEC hike in 1975, Yamani left the negotiations for “consultations” with his government. He refused to agree with the 10% hike but consequently the Saudis quietly implemented the hike. And this scenario can be depicted towards the decisions of Saudi Arabia for their gas prices, they dominate the pricing issues and implement the prices for without the consultations of other oil exporting countries, thus this makes the oil prices to be fictitious (Rutledge, 2005).
Saudi Arabia has been the financer and main backer of an “American Solution” and felt that the time was right for the signal that would oblige the new Carter organization to shift rapidly on this front. Considering the open communication for Saudi and US, the shift revealed the identity of views which basically depicts similar perspectives for the oil matters. The shift for Saudi is the aspiration of the regime in maintaining its influence within OPEC, principally on the question of pricing and related issues regarding the details of finances for determining the price (Mouawad, 2007). Saudi Arabia is not concerned in harshly throbbing the economies in the regimes on Iran and Kuwait for the reason that it will not press on the confrontation that far. In the end, the ones who will benefit the price difference will be the giant companies that control the international market and not directly the consumers.
As of January 2009, oil prices have settled for a price of $37 up and do not have a stable position in the market. It was higher than the previous prices revealed but Saudi Arabia had made big cuts for determining such prices in order to respond to the global crisis. The settlement of the news and reports with the prices are relatively affected by the global oil demand. A need to comprehend with the recession and emerging global economic crisis should be considered though by the oil exporting countries to help reduce the crisis being experienced by the people. According to the Reuters (2009), “OPEC’s secretary general said the cartel may cut oil output further at its meeting in March if the market remains oversupplied a month from now. OPEC agreed to cut supply by 2 million bpd at meetings in September and October” (Reuters, 2009). Though oil prices have increased costs, Saudi is said to be cutting off it prices for the consumers. Reuters added that “The EIA revised down its 2009 world oil demand forecast by 200,000 barrels per day (bpd) on Tuesday, calling for consumption to fall by a total of 810,000 bpd this year compared with 2008 levels” (Reuters, 2009).
It is very important to consider that the economic and political progressions in the Middle East are always related with the perspectives of political and economic issues globally. In particular, the ideas and policies of the prevailing industrialized countries, specifically Unite States, have helped to set the restrictions of industrial development for the Third World. A single characteristic formulation of that point of view can be the idea that a major Western interest in the underdeveloped countries is the interest for increasing the sources of primary products and increasing the markets for industrial exports (Levy, 2008). A good Western strategy would set up the major tools and procedures available to the industrial countries like for example the public and private capital exports, technical assistance, and many more. For some techniques that can maximize the efficiency of assisting the independent underdeveloped countries for the adaptation of policies that are in their own interest for a long term period. Also, it is favorable to the development of primary production for export to countries like Western Europe, Japan and North America.
The discussion for the most optimal oil prices in Saudi Arabia reveals the changes in oil prices as it is affected by the economic crisis that has happened for the past few years. It had been widely impacted by factors such as money inflation, speculation and supply and demand for oil. Accordingly, developed and underdeveloped countries are also affected through the prevailing perspectives of the commentators as they act as either the oil producers or the oil consumers. Hence, the main highlight of these changes is given to the global economic crisis that is happening in the world today. The cause and effect of oil price changes in the world market are largely felt by the consumers as they are the main market of the oil and are just controlled by the large oil corporations. Although the world market sells the oil in a lower price, high prices will still be felt by the end consumers through the oil companies. Higher retail prices result to the oil crisis centered to the people as well as the whole economy of the country.
Forecasts for the economic data in the present year compared to the previous years looks pitiable because of the global crisis and recession in the United Stats. Though however, it is not the end of the economic progress of the developing countries as well as the developing countries. The local economy has been trying its best to do the best in order to push the development through highlighting the strengths of their major industries and also increasing the oil production in order to respond to the demand of the oil consuming countries in the world.
Even though Saudi Arabia is full of issues with regard to the price determinations of oil and relative details should be discussed in order to clarify the grounds between an industrialized country like US and Saudi Arabia, and Saudi Arabia and OPEC. Gas prices should then be fair enough for the world market and comprehend with minimizing the costs in order to help underdeveloped countries and thus balance the related costs and expenses. $10- 20 per barrel per se is seen to be the costs and expenditures of Saudi Arabia for the oil production , they should make the oil available for the oil consuming countries a just and fair price which would maintain the supply and demand for this commodity. This is to diminish the disparity in world market because the global crisis does not really affect the economy of Saudi Arabia; in fact they still emerge in the market because they are the main source of oil in the world which is known to be one of the main goods that the countries need.
It is very much important to remember that oil is a significant commodity for people in order to survive. It is difficult to experience a global crisis because all aspects of the economy are affected but it is very much difficult to experience the absence of oil as it is one of the major resources needed to run all industries today.
Bairol, F. (2007). “Transcript: Interview with IEA chief economist” 2009. Web.
Bailey, R. (2008). “Oil Price Bubble? Supply is up, demand is down, yet the price is soaring. Here’s why”, 2009. Web.
Bjornland, H.C. (2001), ‘Identifying Domestic and Imported Core Inflation’, Applied Economics, 33(14): 1819–831.
Bourland, B. (2008). “Saudi Arabia and the Global Financial Crisis”, Monthly Bulletin, 2009. Web.
Hammes, D. and Wills, W. “Black Gold: The End of Bretton Woods and the Oil-Price Shocks of the 1970s,” The Independent Review, v. IX, n. 4, 2005. pp. 501-511.
Mouawad, J. (2007). “OPEC Finds Price Range to Live With“. The New York Times. 2009. Web.
Ovendale, R. The Origins Of The Arab-Israeli Wars (New York: Pearson Longman, 2004), p. 184-191 and 197.
Rutledge, Ian Addicted To Oil: America’s Relentless Drive For Energy Security (New York: I.B. Tauris, 2005), p. 47.
Reynolds, A. (2005). “Oil Prices: Cause and Effect”, Individual Liberty, Free Markets, Peace. 2009. Web.
Reuters (2009), “Oil Settles Above $37 on Saudi Cuts, Cold Weather”, Web.
Simmons, M. (2008). “Oil Price Rise: History, Reasons and Consequences”. 2009. Web.
Williams, J. (2009). “Energy Economics Newsletter”. WTRG Economics. Web.