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Increase in oil price rise-Reasons

Updated on February 3, 2011

OIL & OIL

Introduction

It is now a very common headline in the Newspaper about the impact of rise in oil price. As a result our pocket gets the pinch when we visit gas stations. We also feel its effect when buying groceries. The rise of oil prices had made us come across another word " inflation" (decreasing the buying power of money). Rise in oil price also resulted in strikes.

It would be interesting to note that in the year 1999 the price per barrel was $16 which rose more than $ 100 in the year 2008.

I have just tried to explain the possible reasons for this price rise and can we really overcome this is a big question.

There are many direct and indirect reasons for the rise in the oil prices. Notable among them are as follows :

Are we ready to meet Supply - Demand seceniro

Are we ready for the consequence

Reasons

  1. Speculation in the futures market also led rise in oil price. Investors brought oil futures and went on bidding higher. It would be interesting to note that CEO of OAO Gazprom had predicted that per barrel of crude would strike a price of $250 in the foreseeable future. Though many economist have denied it and this would happen if there is any war. Investors had already brought 3008 option contract giving them right to buy a barrel of oil at $250 in the month of December.
  2. The rise in demand of oil in both China and India has changed the oil demand scene in the global market. The Govt. of these countries has to cope with this change in social and economic status.
  3. The devastating hurricanes which occurred in the Gulf of Mexico last year had long term effect in the oil production. There has been a production loss of 30 percent (More than 10 percent is still down)
  4. Nigeria which is the 8th largest producer of oil had its production capacity reduced due to internal conflict since 2006. Nigeria's oil production is specially hit by the separatists in the Niger-Delta region have resulted in unparalleled violence.
  5. Weak dollar is one of the main reasons for increase in oil price according to some analyst as weaker dollar makes oil less expensive compared to other currencies

Where are we going

Measures taken

Decision taken by Saudi Arabia to increase the oil production by 2 lakh barrel per day. But looking at the demand-supply scenario the increase is not large enough to have an impact. Another point is to be noted that this extra oil would be relatively low grade "sour crude" rather than lighter grade which is of more demand from the refiners.

Honda had manufactured a new car FCX Clarity which runs on hydrogen and electricity and Honda claims that it is three times more efficient than a standard petrol driven car.

Now time has really come to seek for an anternate for Oil. Can we sincerely look for this option.

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