Today.Az » Business » Today's oil prices: pros and cons
20 January 2012 [10:22] - Today.Az
A barrel of oil costs $ 100. According to the main world oil producer - Saudi Arabia, this oil price must be on the world markets. It is most suitable for all market participants. But there are some fears that the increase in raw material cost may cause a drop in demand and subsequent price collapse, as it happened in 2008.
According to the experience obtained from the previous years, it is clear that super-high oil prices slow the global economy, reduce the demand for fuel and eventually hit on the oil producers. If we talk about the long term prospect, it is not beneficial for the OPEC countries to have the global prices at a high level for a long time. First, these countries, one way or another, face with political pressure from the Western developed and powerful countries (U.S, Europe). Second, as it was mentioned, the high prices are not profitable for them, as high prices remaining for a long time may lead the economy of oil-consuming countries to recession. Thus, it threatens to a slump in oil demand of these countries.
The economic growth is slowed, the production and purchasing power of the population are reduced in the main producing countries and energy consumers (China, India). Of course, the reduction in the production entails a reduction in the consumption of fuel and energy resources. As a chain reaction, it reduces the need for them. The chain goes further and oil prices are falling.
Goods and services slowly lose their value in case of low oil prices. It seems to be fine. But there is one problem. This reduction does not ultimately bring "stability" and "joy" for consumers. The reason is the fall of the total world economy. Millions of work places are closed all over the world. The purchasing power is decreased. The political and military tensions increase in the world. The cheap oil discourages to save energy. It destabilizes the situation in the countries dependent on oil exports, by increasing the likelihood of the rise in prices and a high degree of variability of market conditions of the oil market in the future.
Moreover, the low prices on "black gold" reduce the investments in alternative energy sources, thereby exacerbating the world's dependence on oil and other hydrocarbons. A hypothesis that the modern economy is developing at the expense of intelligence and high technologies, rather than by oil, is disputed.
At present, the developed countries use 50-60 percent less oil per dollar of GDP than in 1970. All this is connected due to the increased energy efficiency, passing to alternative energy sources and the transition from production to services. This means that the rise in oil prices has less negative impact on the world production. However, while rich countries have significantly reduced the oil component of GDP, many developing economies are still major energy consumers. Some Asian economies such as India and South Korea use more oil per every dollar of GDP than in 1970. But, nevertheless, the U.S uses less oil regarding GDP today than 40 years ago. At the same time it produces less oil.
So, net oil imports in GDP are not changed. The impact of oil prices on GDP depends on net imports, rather than consumption. Thus, the negative impact of high oil prices is still preserved. The forms of these effects changed.
On the other hand, high oil prices will stimulate the development of oil production facilities in the non-OPEC countries, such as Azerbaijan. It will increase the profitability of those fields, where the cost of oil is higher than in the OPEC member-countries.
High oil prices also have other features for Azerbaijan. The high oil price is extremely beneficial for the country in terms of compensation for foreign oil companies' capital expenditures within such projects as "Azeri-Chirag-Guneshli" and "Shah Deniz". As a consequence, high world oil prices reduced time for compensations. According to the PSA conditions, they increased Azerbaijan's share in the distribution of lucrative hydrocarbons up to 80 percent.
High oil prices also increase the projected income to the State Oil Fund of Azerbaijan (SOFAZ). For example, SOFAZ funds hit $491.5 million in 2001. They increased by 65 times and reached $32 billion for ten years.
Consequently, a fair oil price will not be set tomorrow or the day after tomorrow. The world will pass many stages to recover the economy to achieve this level and remove general tension in the relations between the countries having antagonistic policies against each other.
Ellada Khankishiyeva /Trend/
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