How to Deal with High Oil Prices

In: Business and Management

Submitted By carll
Words 305
Pages 2
How to Deal With High Oil Prices
Student Name
Global oil industry faces a threat, which primarily originates from escalating oil prices. An increase in oil prices causes a tremendous negative impact on the growth of major developing and developed economies due to its direct effects on the transportation industry thereby affecting mobility of goods and people (Bacon & Kojima, 2006). At the core of the policy response concerning which party should deal with high oil prices numerous parties are considered. These parties are users, businesses, government, and the taxpayers. In response, to escalating oil prices, the government should establish a constant maximum limit of subsidized consumption for each family. Oil subsidy enables government to regulate fuel consumption, which alters the forces of demand and supply thereby obtaining an optimal oil price level. On the other hand, users deal with high oil prices by avoiding the use of personal vehicles unnecessarily. In this sense, users are obliged to use public means of transport, as exceeding the maximum subsidized value leads to a premium rate. In addition, the taxpayers could deal with high oil prices through use of efficient vehicles. Some of the efficient cars have a higher mile to the gallon of gas, which leads to relatively low consumption of gas coupled with less carbon emissions. Improved fuel efficiency offsets the negative impact of higher oil prices on economic growth. Consequently, with high oil prices becoming a reality, the taxpayers’ community would consider fuel efficiency an essential factor when buying a car. In conclusion, businesses would also respond to high oil prices by developing cars that use alternative fuel. Use of electric vehicles is a proof concept of vehicles using alternative fuel.
Bacon, R., & Kojima, M. (2006). How are Developing…...

Similar Documents

Oil Price

...Zi = (Z ΩZ) ˆ S= n i=1 i i n ˜ ˆ where Ω is the diagonal matrix of squared residuals u2 from β, the consistent but not ˆi necesxsarily efficient first-step GMM estimator. In the ivreg2 implementation of twoˆ step efficient GMM, this first-step estimator is βIV , the IV estimator. The resulting ˆ estimate S can be used to conduct consistent inference for the first-step estimator using Equation (11), or it can be used to obtain and conduct inference for the efficient GMM estimator using Equations (14) and (17). In the next section we discuss how the two-step GMM estimator can be applied when the errors are serially correlated. 2.5 Using ivreg2 for GMM estimation The ivreg2 command is included in the electronic supplement to this issue. The latest version of ivreg2 can always be downloaded from the SSC Archive with the command ssc describe ivreg2. We summarize the command’s options and syntax in Sections 11 and 12, respectively. The commands below illustrate how to use ivreg2 to obtain the coefficient and variance-covariance estimators discussed above. The example uses the dataset provided in Wooldridge (2003). The first command requests the standard IV/2SLS estimator and a variance-covariance matrix that assumes conditionally homoskedastic and independent errors. In this case, IV/2SLS is the efficient GMM estimator. The second requests the IV/2SLS estimator and a variance-covariance estimator that is robust to heteroskedasticity based on ˆ an estimate of S as in equation (20); here,......

Words: 16813 - Pages: 68

Oil Prices

...Oil Prices and the U.S Trade Deficit Along with the financial industry, chemical industry and entertainment industry, the energy industry is one of the top markets in the United States with oil production as one of its core essentials. Since the beginning of 2002, oil prices have almost quadrupled overtime. The United States is estimated to be the number one country of oil consumption therefore making the soaring prices one of the major concerns within the country. Although the amount of U.S imports and exports have varied overtime, recently the U.S has been running trade deficits. With the price of oil increasing, an oil-importing country like the U.S will have a substantial increase in the cost of petroleum imports therefore suggesting the deterioration of their trading deficit will be even greater. In this study, Michele Cavallo examines the changes of oil prices and how they affect a number of different factors. These factors include the slow-paced growth in oil production creating has an increase in demand which has outpaced the increase in supply. Cavallo explores the relationship between the surge in oil prices and trade, how the U.S trade deficit evolves in response to higher oil prices and furthermore creates a model that helps explain how the import of oil, despite the increase in price, remained constant and what affect it has on the trade deficit. Using data from January 2002 to July 2006 for overall trade balance and the petroleum trade balance,......

Words: 702 - Pages: 3

Oil and Gas Prices

...Oil and Gas 2 There are many issues that cause the cost of oil and gas to increase. The main contributing issue to the increasing cost of oil and gas is supply and demand, when demand is greater than supply, the price of oil and gas will increase. The factors that affect supply include increased demand, problems with refineries and pipelines, and disruption to supply or threat of disruption to supply. With the increased demand for oil in the United States and other countries such as India and China; the extra demand for oil has put enormous pressure on available oil reserves. The Energy Information Administration stated, “If refinery or pipeline and/or reductions in imports cause supplies to decline unexpectedly, gasoline inventories (stocks) may drop rapidly. This may cause wholesalers to bid higher for available supply over concern that future supplies may not be adequate” (Energy Information Administration, 2008, para. 9). With this in mind, the other underlying factors that affect supply are disruption to supply or threat of disruption to supply along with The Organization of Petroleum Exporting Countries (OPEC). The Organization of Petroleum Exporting Countries is an organization of oil producing countries which produces over 40% of the world’s crude oil and has two-thirds of the world’s oil reserves. This organization was formed in 1960 to regulate the supply of oil and to some extent, the price of oil. The organization includes Algeria,......

Words: 969 - Pages: 4

Oil Price Fluctuation and the Economy

...Research Proposal Impact of Oil Price Fluctuation on the Macro Economy Von Lamey Eastern New Mexico University December 3, 2013 Table of Contents Introduction……………………………………………………………………3 Review of Literature…………………………………………………………..5 Theory…………………………………………………………………………15 Application…………………………………………………………………….18 Summary & Conclusion……………………………………………………….20 Tables…………………………………………………………………………..22 Bibliography……………………………………………………………………24 1. Introduction Oil price fluctuations have affected the people and economies of the U.S. for most of the twentieth century. The commodity has seen minor changes and major fluctuations during this period. Major price changes within a short timeframe are called shocks. The research I propose will attempt to answer the question: What is the impact of changing oil prices on the macro economy of a country? Research has demonstrated oil price fluctuations do impact economies as well as supply of and demand for the commodity. This influence on macroeconomic activity generated symmetric movement between price and many macroeconomic indices in the 1970's. However, after 1982, macroeconomic indices did not demonstrate the same proclivity to react to oil price movement. Information spreads almost instantly with the emergence of the internet. This expedient movement of news has led to an evolving trend of speculation which may or may not be beneficial to commodity pricing. One may infer that the recent......

Words: 7099 - Pages: 29

How to Deal with High Oil Prices?

... How to Deal with High Oil Prices? Currently we are facing a very serious issue, That is, hike in oil prices which is increasing rapidly. Now a day’s oil price is soaring the sky, which can be depicted as one of the major drawbacks in the growth of our economy because high oil prices generally cause a huge negative impact on the global economic growth and continuous depreciation of Indian rupees. So we will discuss how to deal with high oil prices and the methods to overcome. In India there is scarcity of natural resources due to which we have to import petroleum from other countries. As day by day demand for petrol, oil products is increasing and consumption rate of oil being high, it consequently tends to increase in oil prices. Government is always blamed for ever increasing prices but somewhere we people are also responsible for high oil prices. It is our duty also to see how we can contribute towards reduction in oil prices. We must keep in mind that oil is not extracted in our country, so we should also preserve our resources and them in a sustainable manner. According to my opinion only solution we are left with to deal with high oil prices is to reduce the consumption of oil i.e. Decrease in consumption = Decrease in demand = decrease in price. Now the question arises how to reduce the consumption of oil? It can only be reduced by combined efforts of both government and Common People. Following are the measures to be taken to reduce the consumption of oil......

Words: 583 - Pages: 3

How Crude Oil Price Affect Gas Prices

...How Crude Oil Prices Affect Gas Prices Crude oil prices make up 71% of the price of gasoline. The rest of what you pay at the pump depends on refinery and distribution costs, corporate profits, and Federal taxes. Usually, these costs remain stable, so that the daily change in the price of gasoline accurately reflects oil price fluctuations. (Source: EIA, FAQ, December 6, 2013) It usually takes about six weeks for oil price changes to work their way through the distribution system to the gas pump. Oil prices are a little more volatile than gas prices. This means oil prices might rise higher, and fall farther, than gas prices. Historical Oil and Gas Prices: Oil and gas prices have been especially volatile since the 2008 financial crash. Here's a look at their peaks and valleys, and what caused the price swings. * 2014 - Prices remained around $100/barrel. That's because the U.S. has plenty of shale oil. 2013 - Oil rose swiftly to $118.90/barrel on February 8, sending gas prices to $3.85 by February 25. Prices had started rising earlier than normal thanks to Iran's threatening war games near the Straits of Hormuz. What Causes High Oil Prices?: Like most of the things you buy, oil prices are affected by supply and demand. More demand, like the summer driving season, drives higher prices. There is usually less demand in the winter, since only the Northeast U.S. uses heating oil. However, oil prices are also affected by oil price futures, which are traded on the......

Words: 2488 - Pages: 10

Price of Oil

...INDEPTH: OIL The price of oil - in context CBC News Online | April 18, 2006 Oil is sold in barrels - it's the same unit of measure used to sell whisky. A barrel of oil - or whisky - contains 159 litres. The price of a barrel of oil has been testing new highs since it pushed through $50 a barrel in September 2004 - and pushed gasoline prices well beyond $1 a litre in the summer of 2005. But how high are prices like that, historically speaking? Turns out these records may not be records, after all. Oil prices were stable for most of the 100 years before 1973 at well under $5 a barrel. Expressed in today's dollars (all figures in U.S. dollars), the price was closer to $10 a barrel, hitting highs of about $15 and lows close to $8. Even as the world economy boomed in the decades following the Second World War, prices remained fairly stable. That's mainly because the United States held most of the clout in the oil industry - and the U.S. government regulated the price of oil. From 1958 to 1970, prices were stable at about $3 per barrel, but in real terms the price of crude oil declined from above $15 to below $12 per barrel. The decline in the price of crude when adjusted for inflation was further exacerbated in 1971 and 1972 by the weakness of the U.S. dollar. But by the early 1970s, that changed. The Organization of Petroleum Exporting Countries had become a force and in 1973, the first major oil shock hit the world as Arab nations refused to sell to countries......

Words: 7116 - Pages: 29

Oil Prices on Economic Growth

...Oil Prices’ Impact on Economic Growth Since 2008, the U.S. has seen one of the slowest recoveries from a recession since the Great Depression. Never before since World War II has either inflation adjusted GDP or unemployment rate been below where it was four years after a recession began. Our economy in this recovery could have grown and created jobs at the average rate like the 10 previous postwar recessions. GDP per person could be $4,528 higher and 14 million more Americans would be working today (Gramm and Solon). Economists claim that the lack of strength in the recovery was due to the depth of the recession and underestimating the severity of the economic disaster. Another speculation is that the financial crisis, by the very nature is a much slower and more difficult recovery. A recession is generally defined as a decline in GDP growth in a six-month period. So what can keep the GDP, or the value of all consumed goods, from returning to a healthy economic state? Oil is a primary source of energy we use everyday. The more oil we use, the faster the economy grows. Over the last forty years, a 1 percent hit to the world oil consumption has led to a 2 percent increase in GDP. That means if GDP increased 4 percent a year, like before 2008, oil consumption was increasing by 2 percent a year (Anandan, Ramaswamy, and Sridhar). Statistically, in 2006 figures display that the average oil price was $67.65 per barrel. In 2008 when the recession hit, the average oil price was...

Words: 947 - Pages: 4

Oil Prices in India

...The Oil Ministers of 12 member states of Organization of the Petroleum Exporting Countries (OPEC) concluded their meeting in Vienna on November 27 by deciding to continue with their three-year-old production quota of 30 million barrels per day (mbpd). Thus, they calculatingly ignored nearly one mbpd oversupply in the global oil market which has pushed the crude prices down by over 30 per cent since June 2014. The global oil glut, in turn, has been caused by a number of factors which include OPEC’s own overproduction, rising non-OPEC production (particularly by the U.S.-based “Shale Revolutionaries”) and lower demand from China and Europe. By declining to cut their output to shore up the prices, OPEC in general, and Saudi Arabia in particular, have refused to play the role of global “swing producer.” As most factors responsible for the current global demand-supply disequilibrium are systemic in nature, the world faces prospects for relatively bearish oil prices over the foreseeable future. Indeed, the prices have continued to fall with the Indian basket touching $72.51/barrel on November 27 — a decline of nearly $9 from the average during the first fortnight of the month. As the world’s fourth largest importer of crude, India can afford to exult at this precipitous crude price decline. Still, given the strategic importance of this development, a more comprehensive analysis is desirable. A virtuous cycle in the economy From the limited perspective of India’s consumer......

Words: 1017 - Pages: 5

Discuss How Rising Oil Prices Might Affect the Macroeconomic Performance of an Economy

...Discuss how rising oil prices might affect the macroeconomic performance of an economy. (25 marks) There are four main macroeconomic objectives of the government it wishes to achieve in order to maximise the welfare of the society, they are: low and stable inflation, a favourable current account position on the balance of payments, low unemployment and sustained economic growth. One macroeconomic objective that might be affected by rising oil prices is the current account of the balance of payments. The current account is a record of the trade in goods and services, income flows, and current transfer. The balance of payments is a record of the financial transactions over a period of time between a country and its trading partners. With oil prices rising, import prices will also rise likely causing the levels of demand for oil to decrease. This means that that the price elasticity of demand is very low, so a price change causes a proportionately bigger change in quantity demanded because oil is a necessity due to high usage of oil for transport and there are very little substitutes. As the price increases, quantity demanded will fall but only by a small amount due to it being a necessity. Therefore spending on importing oil will likely rise. This means that imports will likely rise, worsening the current account. There is also inflation, as oil prices are rising. Inflation is the sustained rise in the average price level in an economy. Firms have to pay more to import......

Words: 698 - Pages: 3

How Oil Prices Are Established

...How Oil Prices are Established  Did you realize that at our current consumption of crude oil and at our current status of known reserves, we have approximately 40 years of reserves remaining? This is a startling fact when we take into account all the products that are produced from refined crude oil or from its by-products. Many people are aware of the price increases they feel at the gas pump, but has anyone ever considered the cost or investment put forth in finding new reserves? Under the right conditions, oil would sometimes seep up to the surface, but in our times, the search for new reserves is more costly and dangerous.  When considering how the price of crude oil and its by-products are determined, one must first look at the quantities available and the amount required by its users. Crude oil by itself is not a valuable product. The products that are refined from crude oil are where the value lies. Crude oil is refined down into such products as gasoline, diesel fuel, jet fuel, propane and various flammable gasses, perfumes and insecticides. Some refined products from crude oil are also used as feed stocks in the production of other products like animal feed, plastics and other household items. With the expanding economies of various countries like China and Russia (Brown and Virmani 2007), the demand for these products has risen dramatically over the past four to five years. Many nations classified as third world countries are also increasing their need.......

Words: 1392 - Pages: 6

Oil Prices

...OUTLINE Introduction A. What effects can produce oil prices increase? a. Brief history and evolution in oil markets b. Causes of the increment in oil prices B. Colombia on the two sides of oil prices rise effects c. Brief description of effects d. Brief history of petroleum industry Body I. International context a. Global situation of oil prices b. Volatility and Dutch disease II. Colombia Case c. analysis of effects in the macroeconomic view: inflation and currency appreciation Conclusion A. Which are the solutions to control the harmful effects of oil prices increase B. What strategies are implementing in Colombia to deal with the effects of oil prices increase. Thesis statement Since the 1970s the world hadn`t experienced an oil increase like the one that is happening these days where many countries are concerned about the effects that this phenomenon can bring to their economies. As an oil exporting country, Colombia has to deal with a lot of challenge in order to transform all the revenues from petroleum into benefits to their society. However there are some effects that can bring some instability to this small economy, especially the one that international markets create a speculative bubble which can end in the Dutch disease. ‘The Dutch disease is a major market failure originating in the existence of cheap and abundant natural or human resources that keep the currency of a country......

Words: 2669 - Pages: 11

Oil and Gas Prices

...Oil and Gas Prices Darlene Dant COM 150 In August 2006 the American national average for a gallon of gas was $3.09. Gas prices hit an all time high in July 2008 with a national average of $4.12 per gallon. By December 2008 the national average for a gallon of gas was a mere $1.61 (GasBuddy, 2009). Due to the affect that supply and demand has in combination with state and federal taxes, America has seen significant fluctuations in gas prices. As people say, “What goes up must come down” and, in the oil and gas industry the opposite is also true, “What goes down must come up”. Fuel costs are affected by the world’s oil supply. The Organization of the Petroleum Exporting Countries (OPEC) consists of 12 members from various countries, who are the main suppliers of the world’s oil (OPEC, 2009). According to the Energy Information Administration (EIA [2009]), America gets the majority of its oil from five countries: Canada, Venezuela, Mexico, and Saudi Arabia. There are different grades, or qualities, of crude oil. Two of the most popular grades are: light-sweet crude oil (better grade) and heavy-sour crude oil (lesser grade). Depending on where the oil is coming from, it may be of a better, or lesser, grade compared to that of another country. The most desirable crude oil is light-sweet crude oil. While easily obtained in the past, light-sweet crude oil is becoming less available, causing an increase in price (Wagner, 2008). While light-sweet crude oil may......

Words: 1816 - Pages: 8

How to Deal

...How to Deal An exploration of how to deal with emotions and stress in the workplace. Presented to Judy Tedford, Instructor MSD101 – Organizational Development Presented By Kimberly M. Bentley Spring Quarter, 2009 At some point, we’ve all had “one of those days”. Sometimes it’s because our manager has upset us, or maybe our co-worker has done something that you have to pay the price for. Or perhaps it’s because of trouble in our personal lives, or simply because it’s a rainy day. No matter what the circumstance, as humans we are driven by our undeniable and sometimes uncontainable emotions. So how do we really deal with all of the emotions and stresses that life may throw our way? How do our emotions affect our jobs? How do others expect us to handle our emotions? In order to answer these questions, we must first address what emotions and stress really are. This paper will focus in particular on how much our careers are affected by our personal emotions, the emotions and stresses of others, consequences of not properly dealing with emotions and stress, and possible suggestions for dealing with these issues. Organizations are emotional places. Emotions do not just effect organizations, but they also contribute to their structure. In fact, a great deal of leadership is actually about emotion management. Organizations and businesses use emotions to motivate employees to perform and to motivate consumers to buy. Various events in organizations......

Words: 1825 - Pages: 8

Oil Prices

...Dear Stephen Harper, Ontario’s most defenseless citizens are significantly affected by social programs. We need social programs to provide income and employment support to people with financial troubles and people who have disabilities. And right now were not on a high enough pace to reach the goals that have been set for social programs. The demand for social spending is not being fulfilled. With Canada’s rapidly changing financial system, spending on social programs is key to the success of Canada’s economy. And right now instead of the government increasing social program spending, there are gradually slowing down the amount of money that is contributed to social programs. Between 2003-2007, social service spending increased only by 5% each year, where as health care increased by 6% and environment spending increased by 9%. This is not right because these programs help families with their financial securities across Canada. This needs to be increased immediately so that families can support themselves enough until they find a secure job. During the past two decades Canada’s spending on social programs have nearly doubled but still only represents 33% of total program expenditures. In March 2007, total spending on social programs was 172.4 billion compared to $79.5 billion in 1989. Though this might seem like an improvement it’s not because social programs still only represents 33% of all total program spending. If we want to help the economy faster and lower the......

Words: 270 - Pages: 2