Supply and demand of oil

OIL : Supply and demand analysis

Energy sector is perhaps the most traded part of the world economy with oil forming the major chunk . Being the most heavily traded , this Oil is actually the major entity behind the growth of the world as well as the economy . It is this petroleum over which this industrial revolution bloomed . With very few nations producing oil but being required by the whole world , Oil has been one the most sought after commodity with oil producing countries having their coffer flushing with dollars . Changes in oil prices

have caused great impact on the performance of the world economy . It has its association with almost each and every period of recession and inflation (Barrell , 2004 ,

. 2 . Oil shocks of 1974 and 1979 brought an economic slowdown with it . But since 1980 , its price remained steady till 2003 when prices started increasing and is currently hovering around 135 - 140 per barrel . The condition is so precarious that it can cause a new oil shock . A 4 percent fall in global shortfall in daily supply could result in 177 percent rise in oil prices (National Commission on Energy Policy [NCEP] , 2005 ,

. 2 . The price fluctuation causes massive impacts over various oil producers /exporters and indirectly affects other economic sectors like energy manufacturing , transport and service industries

The demand for oil

1 . Cyclical demand : Global economic growth , especially the manufacturing and logistic sector and demand for oil are strongly linked issues Variation in the fundamentals of the oil consumption pattern and the changes in fuel consumption due the rise of new economic giants from Asia , the economic renaissance in world 's two most populous countries namely China and India have opened two new big oil consumers . These countries have a combined population of around 2 .5 billion and their rising economy have made them major oil consumers because of rapid industrialization process and growing people 's purchasing power . Looking into the pattern of the change in consumption in these two countries these developing countries have seen rapid growth with a growth rate being 7-9 in China while India growing at a rate of 5-7 per annum (Economic and Political Weekly , 2005 ,

. 3 . These countries growth in fuel consumption has been so high that countries has been reduced to 62 percent in the year 2003 from a high of 73 percent in 1973 (Barrell , 2004 ,

. 5 . These countries have both consumers and producers sucking a large quantity of oil and have made the demand of oil at an all time high level (BBC , 2006 . They are not just big consumers but are also wasting a great amount of fuel . Oil Intensity i .e , primary oil consumed per unit of GDP , is much higher than that of OECD nations . Taking the case of India , it takes two and half times as much oil as developed nations per unit of GDP (International Energy Agency [IEA] , 2004 ,

. 11 . In the same way , China and other developing nations of...