How Oil Prices Are Wrecking the Economy
At the time of going to the press, oil prices are at $126 to a barrel, more than double the April 2007 price of $63 a barrel. The future doesn't look too bright with prophets of doom predicting still higher prices.
In India, we are yet to feel the real impact of the flaring international oil prices even though over 70 per cent of the country's requirements are met through imported oil. The oil prices in India and many Asian countries are subsidized by government and controlled through price ceiling rules.
High oil prices are here to stay in the long term and would require all of us to adapt our personal finances. But before we look at how to cope up, we need to know why the oil prices have risen so sharply and how this oil shock is different from the previous ones.
Reasons of hike in Oil price
Speculative trading
Traders bet on future prices of oil through commodity exchanges. If there is a natural calamity, or if a country's president or the boss of a global oil company makes a statement which could be linked to oil, the traders at the exchanges bet on a higher price in the future. The record high price of nearly $140 per barrel is the July futures price of oil in the New York Mercantile Exchange.
Geo-political tensions, leading to supply disruptions
Caused by war, terrorist attacks or military warfare in oil rich countries, which could affect oil supply. The US sanctions on Libya, Iran and the war in Iraq have all affected oil prices
Blame it on fast developing countries
Shining India... and China and West Asia, where rising demand (at around 8 per cent from around 7 per cent a couple of years ago) is creating inequities between supply and demand
Controlled production by OPEC
The cartel of the world's largest oil exporters called the Organisation of Petroleum Exporting Countries, accounts for two-thirds of the world's oil reserves but only 40 per cent of world production. OPEC does not want the market to be oversupplied as it would bring down
In India, we are yet to feel the real impact of the flaring international oil prices even though over 70 per cent of the country's requirements are met through imported oil. The oil prices in India and many Asian countries are subsidized by government and controlled through price ceiling rules.
High oil prices are here to stay in the long term and would require all of us to adapt our personal finances. But before we look at how to cope up, we need to know why the oil prices have risen so sharply and how this oil shock is different from the previous ones.
Reasons of hike in Oil price
Speculative trading
Traders bet on future prices of oil through commodity exchanges. If there is a natural calamity, or if a country's president or the boss of a global oil company makes a statement which could be linked to oil, the traders at the exchanges bet on a higher price in the future. The record high price of nearly $140 per barrel is the July futures price of oil in the New York Mercantile Exchange.
Geo-political tensions, leading to supply disruptions
Caused by war, terrorist attacks or military warfare in oil rich countries, which could affect oil supply. The US sanctions on Libya, Iran and the war in Iraq have all affected oil prices
Blame it on fast developing countries
Shining India... and China and West Asia, where rising demand (at around 8 per cent from around 7 per cent a couple of years ago) is creating inequities between supply and demand
Controlled production by OPEC
The cartel of the world's largest oil exporters called the Organisation of Petroleum Exporting Countries, accounts for two-thirds of the world's oil reserves but only 40 per cent of world production. OPEC does not want the market to be oversupplied as it would bring down