About Oil Prices

Mayoor Patel asked:


Current oil prices have increased almost 70% this year. There are a number of reasons for this increase, with three main reasons leading the list. First, there have been few new discoveries of oil in recent years. Second, there is a greater demand for oil especially from China, who is now the world’s largest importer, second only to the United States of America. Third, there is uncertainty in many places around the globe over oil supplies because of war and terrorism. One example of this last point is the report on the arrest of more than 170 people suspected of plotting to attack of Saudi Arabian oil fields, dispute over Iran’s nuclear program, and militant attacks and domestic disputes on Nigeria and Iraq.

These is a school of thought that teaches that oil price hikes are only the beginning of a long term trend. Current oil and gas prices are continuing to increase on a consistent basis, even in times of the year where they usually remain level or even drop a small about. This pattern has lead to a concern that an energy crisis is starting to emerge and the United States and every country in the world is about to experience a difficult period that will result in some hard changes in the way people live and work. The impact of higher oil prices on the economy and on investors is more complex that it would first appear. That is why taking a full global and historical perspective on the price of oil is important.

By looking at the Global Oil database, it can provide some analysis to help investors. Firstly, the increases in oil prices will have an impact on some economic sectors like the airline and auto industries. Secondly, high oil prices would certainly affect inflation. Recently, current oil price has already contributed to the moderate rise in U.S. prices. For Asian countries that experience higher oil demand in recent years, high oil prices would certainly be more unwelcome. China has already become a net oil importer. Net imports of oil would exceed 100 million tons this year, according to estimates. High oil prices would certainly eat into her trade surplus and hence trim economic growth. And lastly, as the demand for oil and human population increase, the world supply for oil will continueto decline. Thus, higher oil prices spur more exploration for oil, increase in the demand for oil substitutes like ethanol and biofuel, and encourage oil conservation.

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