Modern economies are oil-junkies, and they will still be for a long time. Every movement in the price of oil, no matter how small, reaches the furthermost endpoint of the economy. Without hesitation I can say that oil price is the key factor shaping (and limiting) the behavior of our day-to-day economy. An even more important factor than interest rates or currency exchange rates, which are predominant in the long term.
Actual oil prices are the result of a deadly combination of circumstances: political instabilities in oil producer countries, a low exchange rate of the US dollar (still the preferred currency when trading oil), rise on total demand due to developing economies and last but not least speculation. The extended duration of this situation is very worrying for both oil consumers and oil producers. Consumers, meaning developed and developing economies as a whole, have their GDP growths strongly linked to oil prices, as it has the power to increase the cost of production and distribution processes and also personal transport expenses; all of them key drivers for a healthy economy.
On the other side, oil producers fear that high oil prices can harm demand. Even though oil demand has historically been highly inflexible, as energy is a primary need, it also has its breaking point. This breaking point is that where more expensive energy sources (think alternative energies) become affordable when compared with oil.
Oil producers are aware of this breaking point and on the last days we have seen reactions from Saudi Arabia and Kuwait, biggest and 7h biggest oil exporters worldwide respectively, saying they do not endorse such insanely high oil prices. They are profiting largely from these high prices, but at the same time they show some much needed common sense by acknowledging high oil prices can brake or break economic growth. They need their clients' economies to grow, to need more and more of their precious oil.
However, Saudi Arabia's power to increase production will not totally offset the lack of Lybian oil, as Lybian oil is quite different from Saudi Arabia's. Lybian oil is mostly, in jargon, 'sweet crude'. That means it has less sulfur and thus is more suitable for the production of gasoline/benzine or kerosene. The basic oil by-products for their clients. This makes it difficult for the oil producers to normalize the situation unless the turmoil at the Middle East calms down.
On the other side, oil producers fear that high oil prices can harm demand. Even though oil demand has historically been highly inflexible, as energy is a primary need, it also has its breaking point. This breaking point is that where more expensive energy sources (think alternative energies) become affordable when compared with oil.
Oil producers are aware of this breaking point and on the last days we have seen reactions from Saudi Arabia and Kuwait, biggest and 7h biggest oil exporters worldwide respectively, saying they do not endorse such insanely high oil prices. They are profiting largely from these high prices, but at the same time they show some much needed common sense by acknowledging high oil prices can brake or break economic growth. They need their clients' economies to grow, to need more and more of their precious oil.
However, Saudi Arabia's power to increase production will not totally offset the lack of Lybian oil, as Lybian oil is quite different from Saudi Arabia's. Lybian oil is mostly, in jargon, 'sweet crude'. That means it has less sulfur and thus is more suitable for the production of gasoline/benzine or kerosene. The basic oil by-products for their clients. This makes it difficult for the oil producers to normalize the situation unless the turmoil at the Middle East calms down.
Meanwhile in the West, we are finally starting to see some governments concerned about their energy policy and struggling in their search for a somehow stable, long-term energy strategy. As it tends to happen with governments though, this change is far too little and way too late. Changes in energy policy cannot be done overnight, it takes years to shift from one energy source to another. When immersed in an upwards energy prices spiral like we are nowadays, this oil-dependency becomes specially painful. Just have a look at the following graph:
Data from 2011 onwards is obviously just a forecast from the IMF, but it is enough to see the trends there. The United States expenditure on oil imports for example is expected to almost reach the brutal 600$ billion. As you can see Obama's bet for renewable energies is nowhere to be seen. If it was expected to have any impact, it has been totally swallowed by the dollar depreciation.
The situation in Europe is better. Numbers are expected to stabilize from 2011 onwards, which means that Europe controls their oil dependency and finds suitable alternative energies to keep growing. Of course one could look at this from a pessimist point of view, and assuming that oil prices kept growing in the future, the data above would mean that Europe grows much more slowly and thus does not need to spend more on oil.
The situation in Europe is better. Numbers are expected to stabilize from 2011 onwards, which means that Europe controls their oil dependency and finds suitable alternative energies to keep growing. Of course one could look at this from a pessimist point of view, and assuming that oil prices kept growing in the future, the data above would mean that Europe grows much more slowly and thus does not need to spend more on oil.
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