Business Foundation 2009-2010

Economicss coursework

Would take down oil monetary values be good or bad intelligence for the universe economic system?

Prepared by Zakharova Irina

Business Foundation Group 1

Teacher: Mr. Street

St Andrews College, Cambridge

Content

Introduction

Advantages of low oil monetary values

Disadvantages of low oil monetary values

Decision

Mentions

Introduction

Nowadays oil is one of the most of import resources on the Earth, it is an indispensable portion of the universe & # 8217 ; s trade and economic system. It takes the taking topographic point in universe & # 8217 ; s fuel and energy sector and is an indispensable merchandise for most of states, which both produce oil and usage it for production intents and energy outputs. The monetary values for oil, as for any other merchandise, are measured by the demand and supply steps, but as the demand for oil is rather inelastic ( people would anyhow purchase the same sum of oil even for higher monetary values ) , even inconsiderable autumn of supply would do a crisp rise in monetary values:

At the same clip, when some other oil militias are found, the supply is traveling to increase, hence doing lower oil monetary values. This is instead bad intelligence for the universe, than good, as there are much more disadvantages instead than advantages for the universe & # 8217 ; s market, economic systems of states and our planet from ecological point of position.

Advantages of lower oil monetary values

Depreciation of monetary values on oil would be good for the states, importing and devouring oil. Among the top oil consumers there are such states, dependant on oil, as the United States, which by 2007 were devouring 20,680,000 barrels a twenty-four hours, from which over 13 mln barrels are imported. But non every bit much for the US ( because autumn in oil monetary values would besides be a bad intelligence for them as manufacturers of oil ) , but for such states, seeking to acquire out of economic system & # 8217 ; s recession, as Ireland, which is from 2008 seeking to acquire out of recession ( recent figures for GDP = -1,28 % by January 2010 ) , Italy ( which is besides acquiring out of recession with current GDP rates of -0,3 % , while its oil imports are over 1,7 mln barrels a twenty-four hours ) , Greece, which economic system is besides in problem and other oil devouring states. As oil becomes cheaper, the state spends less on importing oil, and the money saved are spent on authorities disbursement, therefore the national GDP grows every bit good as people & # 8217 ; s stuff life criterions, and the economic system gets out of recession and high unemployment rates in the state.

Disadvantages of lower oil monetary values

However there are more disadvantages of inexpensive oil, instead than benefits, and foremost, it is bad intelligence for states exporting more than 80 % of the oil they produce, such as Singapore ( which exports 10,909 % of domestic oil produced ) , Belgium ( 5, 816 % ) , followed by Netherland, UK, some members of OPEC ( Saudi Arabia ( 80,9 % ) , UAE ( 100 % ) , Nigeria, Kuwait, Venezuela ( which oil exports history for 1/3 of its GDP ) a

nd others ) , Norway ( about 3 mln barrels – 101,3 % ) and other states, . As the monetary value for oil goes down, the demand for oil will stay on the same degree, and states would do less net income than expected for oil exports. That would take to fall of GDP rates, and would be followed by cutting authorities disbursement and increasing revenue enhancement, besides as consequence unemployment would lift, and all that may even convey the country’s economic system into recession because of their exposure to oil dazes.

Furthermore, cheaper oil besides would do lessening in private investing into oil bring forthing companies, as they see it rather hazardous and returns go excessively unsure for funding. As a consequence, oil bring forthing companies & # 8217 ; development slows down, and that procedure reflects on reduced volumes of production and exports. That would hence convey less net income into a national economic system, and consequence once more in lessening of GDP rates and do internal jobs in the economic system.

As a consequence of hapless investing in oil companies and GDP falls, the universe, which is dependent on strong oil exportation and importation states, will hold to get the better of a general autumn in GDP, which is bad in common.

In add-on to this, low oil monetary values are besides bad for the universe. As the monetary value on crude oil gets lower, more drivers, working for cab and public conveyance, would seek to profit from inexpensive gasoline by doing more excess drives. Some companies, that produce fictile goods, might purchase more oil to bring forth more merchandises. As a consequence of it, the environment suffers the most. More pollution is caused because of increased emanations of C dioxide, and the authorities would hold to increase disbursement on work outing the job, trying to cut down gasoline emanations, making societal runs, promoting people to exchange to utilizing bio-fuel or natural gas, which are less unsafe for the environment. On the other manus, as more gasoline would be bought, more oil would be required from the companies, and that would increase oil production, which is besides environmentally damaging. That would even do environmental state of affairs worse.

Decision

To sum up, oil monetary values in the universe play an of import function in each state & # 8217 ; s economic system, and most of the states with strong economic systems are less likely to profit from low oil monetary values, as they are conveying less net income, doing more excess disbursement ( made by authoritiess, e.g. on economic system & # 8217 ; s recovery ) and even do environmental jobs. At the same clip, those states, which are seeking to acquire out of recession, are more likely to profit from purchasing cheaper oil and utilizing it for increasing production ( end product ) and hence increasing its GDP rate and bettering life criterions in the state.

Mentions

Class notes

Web sites:

1. www.nationmaster.com/graph/ene_oil_con-energy-oil-consumption

2. www.import-export.suite101.com/article.cfm/countries_dependent_on_oil_imports

3. www.tradingeconomics.com/Economics/GDP-Growth-Annual.aspx

4. www.trud.ru/article/18-07-2008/131246_neft_utekaet.html

5. www.import-export.suite101.com/article.cfm/leading_oil_export_countries

6. hypertext transfer protocol: //seekingalpha.com/article/111251-low-oil-prices-kill-energy-investment