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What Is The Impact Of Oil Price Rise On Various Sectors Of Economy?

3044 words - 12 pages

Global price rise ScenarioA price rise in Crude oil from March 1999 up till present day has brought price rise in the Fast moving consumer goods and oil products. It was expected that Organization of Petroleum Exporting countries (OPEC) will encourage the producers to boost Crude Production to 2.0 Million barrels a day. This mass increase in Crude production would help developing and developed countries to save there economic conditions from getting impacted by inflation and price rise on every consumer durable goods. This oil price is noticed since late 1970's.* West Texas Intermediate in constant (July, 2005) U.S. dollars. SOURCES: Federal Reserve Bank of St. Louis, and Bureau of Labor StatisticsThe high oil prices were not due to the high demand from all economies but also due to war threat on major oil producers like Iran. Even the ongoing war in Iraq has played vital role in rise of crude prices as showed in the graph. Recent increase in oil prices has lead to substantial slowdown in growth rate and increase in inflationary pressures for all countries world wide. The IEA (International Energy Agency) said that crude demand has increased to 82.2 million barrel per day worldwide (BBC News). The inequality in demand and supply in oil production and various geo-political factor has lead to high crude price which have risen to its highest level. This price rise is also expected to rise in future. The Global increase in price rise has leaded to increase in price rise in every single country and its major economic sectors are affected.Global effect of price rise scenarioThe latest projections made by World Economic Outlook which was based on recent reports presented by IMF (International Monetary Fund). Oil acts as a life blood to every nation of world. The rise in oil price of more than 21% in recent 4 years, various sectors of global economy are affected (IMF). The extent of direct effect of oil price rise depends on the share of cost of crude oil in national income, the degree to which it is consumed. It is easily understood that higher the oil price increase and longer the price sustains larger is its macroeconomic impact. Higher oil price leads to Inflation, increased input costs and lower investment in net oil importing countries.Impact of $10 Oil Price IncreaseOn Oil Importing Countries OECD Countries Developing CountriesGDP -0.40% -1.50%Consumer Prices 0.50% 0.90%* Energy Information AgencyThe above table shows how increase in price of oil per barrel affects oil importing countries which are dependent on the oil producing countries. Increase in price of crude oil, major sectors of an economy are affected which includes developing and developed countries. Current consumption of oil by US is 19.6 Million barrel per day, which comes to 25% of world's total oil consumption per year (University of Nebraska). In the same terms developing countries like India and china consumes around 11.52 Million...

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