Unstable oil prices

http://news.bbc.co.uk/2/hi/business/7687944.stm




World oil prices continue to decline with the current tag at US$64.15 a barrel despite Opec's (Organization of the Petroleum Exporting Countries) effort to stop recession by slashing down production by 1.5 million barrels. According to Opec, the cuts were an attempt to stabilize oil prices while reducing the supply which outpaced demand. The price of crude oil has fallen substantially from the all time high of US$147 a barrel in July 11. While some people are speculating further price cuts, the president of Opec, Chakib Khelil, is considering further cuts in output. The recession damaged the credibility of Opec as well. As oil analyst Stephen Schork stated that "The power to influence oil prices is moving farther and farther away from Opec".


Economically, oil has over time managed to evolve into a pretty elastic commodity. The growing elasticity of oil stresses the importance of a stable price since even a small increase can have a large impact on the demand. And since oil is a complementary product required for most methods of travelling, lower oil prices will also likely result in higher demands for cars and travelling. Electricity and alternative fuels can be used as substitute products but they aren't necessarily as efficient, and can be quite hard or costly to switch out to. In the end, much like the laws of demand and supply stated, the drop in the price of fuel decreased the quantity supplied and increased the quantity demanded.


Oil is a scarce resource that we should use rationally. Apart from the jolt of satisfaction we experience when sniping a full tank of oil for a cheaper price than yesterday, the cascading prices of oil have other more significant effects on us. First of all, with lower oil prices, we become less conscious of the amount of oil we consume. Clarifying, we will be more inclined towards a ride over a walk now, than when oil prices were up by over a walloping 50%. Secondly, cheaper crude also affects the other markets it is connected to. For example, the tourism and transit industries can make more revenue and afford cheaper deals now than they could before. And finally, the low oil prices are devastating to countries that have an economy dependant on oil, such as Venezuela and Iran. In conclusion, I think that we should try our best to control the consumption and price of oil to avoid an economic crisis.


--Rafaat Mir