OIL PRICES

Evaluation of the Impact of Increased Fuel Prices on Selected Sector of International Business

Evaluation of the Impact of Increased Fuel Prices on Selected Sector of International Business

Introduction

Rising oil prices since 2002 is comparable to that which had been caused the oil shocks of 1973 and 1979. The price of Brent was multiplied by five, exceeding for the first $ 100 in January 2008. The impact of this dramatic increase in prices on growth in the euro area was still relatively low for reasons both economic and structural. The first reason of this was based on the fact that the euro appreciation, since 2002 has reduced by half the rise in oil prices for economic actors in the euro area (and therefore the impact of rising oil prices on growth). Secondly, the dependence of the economy on oil has decreased significantly since the 1980s (Speight, James, 1999, p. 34). Thirdly, high taxes applied to petroleum products paradoxically dampens the rise in commodity prices since it is proportional to the volumes sold and not for unit price. Fourth is the fact that increased competition in the labor market and market products reduces the risk of inflationary spiral. We finally analyze the implications of rising oil prices for monetary policy (Mabro, Robert, 2006, p. 351). General economic conditions and the impact that moderate oil prices in 2008 should have on activity and inflation suggest that the European Central Bank should maintain the neutrality of monetary policy and maintain its real interest rates constant, which would imply an increase in interest rates a quarter point in early 2008 (Mabro, Robert, 2006, p. 351).

It can be said that the topic I have chosen for the study is relevant, interesting and important, because of the fact that oil is such a product that can have an impact on each and every product in the world, as well as, the global economic situation.

Aim and objectives

Following are the aims and objectives of the study:

To identify the impact of oil prices on other commodities.

To identify the impact of oil prices on the economy.

To identify ways in which the impact of oil prices on other commodities and the economy can be reduced.

Literature review

The increase in oil prices since 2002 is of a magnitude comparable to the oil shocks of 1973 and 1979

Between January 2002 and November 2007, the dollar price of a barrel of Brent North Sea has increased 4.8: it rose from 19.4 to 92.5 dollars. During 2007 alone, it increased by 39 dollars, an increase of 72%. Several reasons may explain this dramatic increase. Global growth has been strong in recent years (4.6% on average between 2002 and 2007), which increased oil consumption (11% in volume between 2002 and 2007) despite soaring prices. The growth in demand was particularly strong in China. Non-member countries of OPEC (Organization of Petroleum Exporting Countries) could not increase production to keep pace with demand. OPEC has made decisions that could support higher oil prices and to smooth their income over time in ...