Oil 2

Oil Dependency

By: Erika Ferguson, Rebecca Margolis, Alex Raske

Current Market Trends•Dec. 2007 OPEC --> oil prices high but stable to meet the demand

•They suggested a range of $70-80 a barrel

•Oil producing countries becoming industrialized and using oil domestically

–Could result in less oil for trade and rise in price–Example:

•Mexico and Iran (demand to exceed production in 5 years) •Russia (whose domestic petroleum demand is growing rapidly).

Throughout 2008 many predict high price of oil coming

• July 2008: the price of crude oil reached an historical high level of US$147 per barrel.

• However, as a consequence of falling demand over the following six months, the price declined by well over 60%.

Monthly Average Domestic Crude Oil Prices 2008

U.S. Average (in $/bbl.) Month Nominal Inflation Adjusted

Jan-08 $84.70 $85.24Feb-08 $86.64 $86.94Mar-08 $96.87 $96.37Apr-08 $104.31 $103.15May-08 $117.40 $115.12Jun-08 $126.33 $122.64Jul-08 $126.16 $121.84Aug-08 $108.46 $105.16Sep-08 $96.13 $93.34Oct-08 $68.50 $67.19Nov-08 $49.29 $49.29Dec-08 $32.94 $32.94Jan-09 $33.07 $33.78Feb-09 $31.04 $31.55Mar-09 $39.88 $40.44Apr-09 $42.20 $42.69May-09 $51.02 $51.46Jun-09 $61.46 $61.46

Predictions are correct

Summer of 2008= high

Winter 2009=low

• Oil Fluctuates every day!

• http://oil-price.net/dashboard.php?lang=en

Current Trends in the Market (6-12 months)

• The prices are fluctuating constantly, but the general trend has them rising

• Most countries have oil prices between $2-$4– United States, Thailand,

and Australia

Continued…• Many countries have

expensive oil – Belgium ($6.16/gal),

Hong Kong ($6.25/gal), Norway ($6.82/gal)

• Some countries have a gallon of gas below $1 – Saudi Arabia and

Venezuela

Predictions

• By 2020 gas prices are supposed to get even larger.

• $200

• $300

• $350!

Reasons for oil prices

• Business cycle

• It is a scarce resource

• Speculation

• Inflation

• Depletion – Ghawar

• More drilling?

• Rising oil prices affect the consumer price index (CPI) because the energy cost component is increased.

• Rise in oil price raises demand for substitute products• Rising oil prices make transportation costs rise and results in an

overall increase in the cost of living-->Increase in workers wages

• Business decided to pass on their increased costs of production onto the consumer price.

• INFLATION

• Higher oil prices can

cause worker layoffs and the idling of plants, reducing economic output in the short term.

• When oil prices increase, consumers spend more money on oil (foreign), less money spent on domestic products

Other effects on the economy

Results

• Alternative energies: wind, solar, and geothermal

• Alternative fuels:biofuels, ethanol, cellulosic ethanol, fuel cells

• Hybrid Cars by Toyota, GM, Honda, Ford, Nissan

• Electric Cars

Short Term Effects

• Who is hurt?– Oil consumers– Automobile/airline – industries– All oil-consuming

companies

• Who benefits?

Long Term effects

• Who is hurt?– Petroleum Empire

• Who benefits? – National Interest– Earth– Oil Consumers