THE INTERNATIONAL OIL MARKET.   Term Paper ID:30568 Click to get this paper

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Paper Abstract: Examines various aspects of the global crude oil market. Dominant issues. Future supply/demand assessment. Role of OPEC. Economic effects on Saudi Arabia of future supply and demand for crude oil. Discusses past developments, the energy crisis and crude oil supply and demand in 2001. Global environment. Future implications. 3 Tables. Paper Introduction: THE INTERNATIONAL OIL MARKET: FUTURE SUPPLY/DEMAND ASSESSMENT AND ITS PROBABLE IMPACT ON THE ECONOMY OF SAUDI ARABIA Introduction From March 2001 to November 2001, the global crude oil market shifted from an environment of under supply to an environment of under demand. In early-2001, the dominant issue in the context of the global crude oil market was the probable economic effects on oil-importing nations. In late-2001, however, the dominant issue in this context is the probable economic effects on oil-exporting nations; especially oil-exporting nations for which crude oil is the country’s primary source of export earnings (“A changing Oil Market” 19). Saudi Arabia is a prime example of an oil-exporting nation for which crude oil is the country’s primary source of export ea Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Lastly, the great majority of the Saudi population was neithertrained nor educated to the degree required for major social and economicdevelopment (Reed 52). "Bush Orders Oil Reserve Filled to Maximum." New York Times (14 November 2 1): C1.Barboza, D. Over the short-term, export income for Saudi Arabia willshrink. Table 1: Energy Surplus & Deficit Characteristics By Global Region|Global Region |Surplus/Deficit [%] ||Africa |+ 225.9 ||Central America & Caribbean |+ 1 8.5 ||[includes Mexico] | ||China |+ 4.3 ||Eastern Europe [less Russia] |- 11.2 ||Japan |- 89.7 ||Middle East |+ 1,232.7 ||North America [Canada & USA] |- 15.5 ||Oceania |+ 11. Gain." New York Times (19 November 2 1): C1.Cole, J. "Investment: Should You Invest In ... Crude oil prices in November 2 rose to their highest level(measured in 1996 dollars) since the Gulf War in 1991. Statesman's Year-Book, 2 1-2 2. In late-2 1, however, the dominant issue in this context is the probable economiceffects on oil-exporting nations; especially oil-exporting nations forwhich crude oil is the country's primary source of export earnings ("Achanging Oil Market" 19). Works Cited"A Changing Oil Market." The Oil and Gas Journal 99 (15 October 2 1): 19.Amuzegar, J. First, its crude oilresources were the greatest of all in OPEC, as were their oil-derivedearnings. The same conditionsfrequently have led to strains within the OPEC cartel that have threatenedthe both the organisation's continued effectiveness and its very existence(Amuzegar 25). P. Over the short-term, the cost of imports will increase forSaudi Arabia. The general consensus of informed opinion is that theSaudi domestic economy will continue to expand. The reason for this situation is that theindustrial countries have only limited petroleum resources. At the same time, its capacity to realizethese earnings tends to be pushed-down by a current (short-run) diminisheddemand/price structure for crude petroleum and resource conservationincentives (such as they are) in oil-importing countries. Inearly-2 1, the dominant issue in the context of the global crude oilmarket was the probable economic effects on oil-importing nations. Eventually, 13 countries joined OPEC. The priceelasticity of demand, coupled with an oversupply situation, explains thedemand/price structure inhibitor (Greene and Tishchisyna 11). "OPEC's Paid Is U.S. |2.3 ||Western Europe |18.9 |1.8 ||Asia [Excluding China]|15.8 |1.5 ||Oceania |3.3 | .3 || ||OPEC |8 2.1 |77.6 ||Industrial Countries |47.9 |4.7 ||All Other Countries |183.2 |17.7 | Source: World Resources Institute, 2 1 Thus, under such circumstances, Saudi Arabia's current need for crudeoil earnings tends to be pushed-up by both its international commitmentsand its domestic commitments. In 2 , real GDP growth was 4.5 percent, but theoutlook for all of 2 1 is for far lower real growth (U.S.-Saudi ArabianBusiness Council 1). The most widely usedenergy sources - fossil fuels and nuclear energy - pose significantenvironmental risks. "Stepping Up the Pace." MEED Middle East Economic Digest 45 (29 June 2 1): 25-26."Merrill Lynch Bullish: Oil Price Poised to Eclipse." Oil Daily 51 (22 August 2 1): 1."North American Oil supply Mixed." Oil Daily 51 (7 November 2 1): 1."Oil Price Fuels Strong GDP Growth." MEED Middle East Economic Digest 45 (6 April 2 1): 18-2 .Reed, S. Thepurpose of the organisation was (1) to unify and coordinate the petroleumpolicies of the member states, and (2) safeguard the general interests ofthe member states. The Role of OPEC OPEC was founded in Iraq in 196 . Conclusion The purpose of this research was to assess future supply and demandfor crude oil in relation to the probable economic effects of this scenarioon Saudi Arabia. Ecuador and Gabonsubsequently left the organisation (Hunter xxiii). "Saudi Arabia." Business Week International (24 July 2 ): 52-56.Root, K. From the time that the developing oil producing countries formed OPECin 196 , and, particularly, since the imposition of the oil embargo onshipments to western industrialized countries by OPEC members in 1973,Saudi Arabia has been transformed from one of the poorer countries of theworld to one of the richest, as measured by per capita gross nationalproduct. Harmondsworth, England: Penguin Books, 2 1.Crainer, S. Theinterrelationships working within the problem are several. Especially important are the variations in crude oil supplyand demand in 2 1. TheMiddle East has a massive energy surplus, while Africa and Central Americaand the Caribbean [including Mexico] have important energy surpluses.Japan, Western Europe, and South America have the most important energydeficits. This assessment begins with the development of an investigativeperspective and proceeds to a review of the role of the organization ofPetroleum Exporting Countries (OPEC). Over the long-term, however, Saudi Arabia will confrontinflation. Existingproduction/consumption patterns might be able to be altered in an emergencysituation, depending upon energy reserve characteristics. Massive economic and physical resources are alreadycommitted to some forms of energy production. In earlier energy crises wars, intentional oil embargos, importquotas, cartel actions, and other identifiable phenomena provided ready, ifnot, fully acceptable explanations for energy-price increases and theirimpacts on the global economy - especially on the industrial economieswhose recessions frequently translate into depressions in peripheraleconomies (Barboza C1). With oil revenues accounting for approximately 85 per cent of totalSaudi export earnings and approximately 4 per cent of the country's GDP,Saudi Arabia's economy remains, despite attempts at diversification,heavily dependent on oil, although investments in petrochemicals haveincreased the relative importance of the downstream petroleum sector.Although the collapse in oil prices of 1998 and early-1999 ended in late-2 , Saudi Arabia continues to face pressures to reform its economy and toopen up to increased private investment in the face of the new collapse ofoil prices in late-2 1. The energy problems that afflicted the world in mid-2 1 appeared, insome ways, to be an eerie replay of a scenario from the mid-197 s. Conflicting objectives among memberstates of the organisations, rivalries among these states, and changingglobal economic conditions, however, frequently have led to the inefficientfunctioning of the OPEC cartel (Crainer 66). Saudi Arabia is the world's leading oil producer,exporter, and holder of spare oil production capacity (Energy InformationAdministration 44). The eightadditional member states were Algeria, Ecuador, Gabon, Indonesia, Libya,Nigeria, Qatar, and the United Arab Emirates. The Saudi Arabia economy likely will experience several short-termeffects and long-term effects of the future supply of and demand for crudeoil. While economicfactors exert an enormous influence on the selection of energy sources, thedecisions that must be made with respect to environmental and economictradeoffs are political in character, because such decisions must besocietal in scope. Over the short-term, prices in Saudi Arabia's domesticeconomy will fall. Many otherpeople would oppose compensation under such circumstances. I. The founder members of theorganisation were Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Investigative Perspective To understand the implications of future supply and demand for crudeoil, an understanding of past developments in crude oil supply and demandis necessary. Third, the country's infrastructure was hardly developed atall. OPEC member countries consume verylittle of their own oil "Russia Stands Firm - For Now - On Output, DespiteOPEC Pressure" 1). Global Environment of Crude Oil Exports The world's dependence on energy sources, most of which are notlocated in areas where they are consumed, causes the locations of worldenergy reserves to be as crucial a concern as are the energy surplus anddeficit characteristics of the international regions. OPEC's share of world oil production declined 25 per centage pointsfrom 1973 and 1985. Over the long-term, however, Saudi Arabia's export earnings willgrow. Among the more significant of these effects are the following: 1. Over the short-term, unemployment will increase. Over the long-term, however, the costs of imports willdecrease. Oil Companies?" Independent- London (12 May 1999): 7."Russia Stands Firm - For Now - On Output, Despite OPEC Pressure." Oil Daily 51 (2 November 2 1): 1."Saudi Arabia: Exports and Logistics." APS Oil Market Trends 57 (29 October 2 1): 18-19.U.S. As Saudi Arabia is the leadingmember states of OPEC, this assessment must consider the role of OPEC. Gross domesticproduct (GDP) per capita was US$ 8,439 in 2 . In stead of worries about economiceffects on the oil-importing countries, the worry now is about economiceffects on oil exporting countries, especially countries such as SaudiArabia for which crude oil is the primary export earner. Their crude oil resource, frequently (when global marketprices for crude oil are depressed) is more valuable in the ground than itis when it is extracted. Table 3: Proved Recoverable Crude Oil Reserves by Global Region and Development State-1999|GLOBAL REGION |BARRELS [BILLIONS] |SHARE [%] ||Middle East |673.6 |65.2 ||Latin America |89.5 |8.7 ||Africa |75.4 |7.3 ||North America |73.8 |7.2 ||Eastern Europe |58.9 |5.7 ||China |24. World Resources 2 1-2 2: The urban environment. OPEC's market share was at its lowest level prior tothe major collapse in oil prices in 1986. This prognosis in no wayis an attempt to hide the fact (or minimize the fact) that the globaleconomic conditions have created serious problems for the Saudi economy.This prognosis does recognise, however, that the Saudi economy is sound,and that the Saudi government has planned well and executed its plans wellin connection with the crisis. Washington, DC: Energy Information Administration, 2 1. Thus, environmental, economic, and political factorsmust all be considered in the development of a national or global energypolicy (Banerjee C1). The country also has ultimately recoverable reservesof one trillion barrels. While thegovernment is expected to continue funding for the construction ofinfrastructure, it is also expected to severely reduce funding forproductive plant (McDowall 25). "OPEC's Seventh Life." Middle East Policy 5 (September 1997): 25-39.Banerjee, N. Retrieved from the Internet 2 1 November 29 at: http://eia.doe.gov/emeu/ieaEverett-Heath, T. Over thelong-term, however, employment levels will increase. Saudi Arabia, however, was a separate case. "Costs of Oil Dependence." Transportation Quarterly 55 (Summer 2 1): 11-21.Hunter, B. International Energy Statistics. Just 1 months later, in November 2 1, the world faces a glut of oil("North American Oil Supply Mixed" 1). The International Oil Market: Future Supply/Demand Assessment and Its Probable Impact on the Economy of Saudi Arabia Introduction From March 2 1 to November 2 1, the global crude oil market shiftedfrom an environment of under supply to an environment of under demand. Saudi Crown Prince Abdullah has stated that a periodof austerity lies ahead, and that the boom period for Saudi Arabia andother Gulf oil producing countries is over. ||Russia |+ 11.7 ||South America |- 32.8 ||South & East Asia [less Japan] |+ 5.3 ||Western Europe |- 59.2 | Sources: Cole: 2 1; Energy Information Administration, 2 1 Another important factor in the energy equation is the location ofenergy reserves by energy source. No convenient explanations were available for theenergy price increases occurring in the late-2 and the first-half of2 1. Inflation was nil in 2 and prices are falling in 2 1. Following theexamination of the global environment of crude oil exports, the principaldiscussion in this assessment considers the economic effects on SaudiArabia of future (1) supply of and (2) demand for crude oil. The economic effects on Saudi Arabia of future crude oil supply anddemand factors will be different in the short-term and long-term.Generally, short-term effects will be negative, while long-term effectswill be positive. OPEC functions as a cartel. A collapse of world crude oil prices and crude oil demand places injeopardy both the domestic and international objectives of Saudi Arabia.In such an environment, the Saudi government faces enormous pressures tosatisfy the demands of the Saudi population and international customers,while export earnings from crude oil sales become insufficient to cover thecost of satisfying these demands ("Saudi Arabia: Exports and Logistics"18). Saudi Arabia is a prime example of an oil-exporting nation for whichcrude oil is the country's primary source of export earnings. The dilemma described above is essentially a short-range concern.Over the long-term, most analysts think that Saudi Arabia's and OPEC'senormous crude oil reserves will prove sufficient to allow a return to aposition of pre-eminence in crude oil supply following a short-termregression (see Table 3). L., and Tishchisyna, N. Geography of World Affairs 5th ed. The purposeof this research is to assess future supply and demand for crude oil inrelation to the probable economic effects of this scenario on Saudi Arabia. For Saudi Arabia, otherparticular challenges are the country's rapid population growth, youngpopulation, and the challenge of finding good jobs for these people outsideof the public sector, which is overstaffed and a drain on the country'sbudget. Theassessment then examines the global environment of crude oil exports. Thisenvironment provides the framework within which the emergence of futuresupply and demand scenarios for crude oil will occur. Since 1981, there has been a generally declining trend in crude oilprices due in great part to increased supplies from non-OPEC sourcesincreased and consistent overproduction (above their established quotas) bythe member states of OPEC. Saudi Arabia (not including the Saudi-Kuwaiti Neutral Zone) has provencrude oil reserves of 261 billion barrels, which is in excess of one-fourthof the world total. The OPEC countries, however, also face a long-term dilemma. New York: World Resources Institute, 2 1. Unlike most other oilproducing countries, a major portion of the oil of the OPEC member statesis traded in international markets. The internal problems faced by OPEC throughout its history threatenboth the organisation's effectiveness and its continued existence.Similarly, the development of alternative crude oil sources, thedevelopment of alternative fuels, technological innovations that reduce thedemand for energy consumption, and political developments such as thecreation of the World Trade Organisation (WTO) may lead to the developmentof scenarios wherein both the market effectiveness and even the continuedexistence of OPEC are at risk (Amuzegar 33). OPEC's market share hasrebounded since the 1986 price collapse and, by the turn of the century,stood at about 43 per cent of world oil production. Over the past decade, Saudi Arabian economic growth has failed tokeep pace with population growth (U.S.-Saudi Arabian Business Council 1). Energyprices rose in the face of apparent supply sufficiency, politicians wrungtheir hands but did nothing, and consumers in the industrial oil-importingcountries complained but did little in the way of energy conservation("Energy Conservation: An Idea Whose Time Has Come Again" 26). While the government of Saudi Arabia expects a recovery in its oilfortunes, it no longer entertains hopes that the country's oil-derivedrevenues will permit the unlimited funding of all developmental projects.In part, this change in expectations is the result of reduced growth in oilrevenues, and, in part, the change results from the enormous increase incapital demands for economic development within the country. (Ed.). Economic Effects on Saudi Arabia of Future Crude Oil Supply and Demand Saudi Arabia is a nation of 2 .5 million people. 4. Such asituation implies that oil will be worth more in the future as the oil-importing countries exhaust their own resources (Root 7). "Speculators Kept At Bay By Exclusive Ways." Middle East Economic Digest 42 (18 September 1998): 32-34.Greene, D. Crude oil prices inearly-August 2 1 remained at the upper limit of the OPEC target pricerange ("Oil Price Fuels Strong GDP Growth" 18; "Merrill Lynch Bullish: OilPrice Poised to Eclipse" 1). Saudi Arabian Business Council. Martin's Press.McDowall, A. As the data presented in Table 1 indicate, Africa, Central America andthe Caribbean [including Mexico], China, the Middle East, Oceania, Russia,and South and East Asia [less Japan] are the energy surplus regions, whileEastern Europe [less Russia], Japan, North America [Canada & the USA],South America, and Western Europe are the energy deficit regions. Pressing internal revenue requirements for manyOPEC member states precipitates the overproduction of OPEC quotas (Amuzegar29). Energy surplusand deficit characteristics by global region are presented in Table 1. The new wealth accrued by the oil exporting countries broughtwith it both problems an opportunities, and the different countriesinvolved used the income in different ways (Everett-Heath 32). "The Saudi Arabian Economy." Retrieved from the Internet 2 1 November 29 at: http://www.us-saudi- business.org/economy.htmWorld Resources Institute. Unemployment is 36 percent for males and95 per cent for females (U.S.-Saudi Arabian Business Council 1). 3. 2. Second, the country had a moderate-sized population, which wasquite poor. New York: St. Environmental factorsplay a major role in the selection of energy sources. Table 2: Energy Reserves By Location & Source [quadrillion btu]|Global Region |Petroleum |Natural Gas |Coal |Uranium ||Africa |343 |2,134 |398 |1,6 7 ||Central America & |121 |617 |47 |27 ||Caribbean | | | | ||[including Mexico] | | | | ||China |116 |257 |223 |1 1 ||Eastern Europe |17 |1 3 |1,527 |448 ||[less Russia] | | | | ||Japan |15 |62 |179 |14 ||Middle East |2,124 |7,938 |2 |1 ||North America |2 6 |2,755 |5,478 |14, 38 ||[Canada & USA] | | | | ||Oceania |34 |4 8 |399 |1,431 ||Russia |435 |9,458 |2,328 |1, 1 ||South America |113 |499 |81 |15 ||South & East Asia |66 |792 |4 2 |175 ||[less Japan] | | | | ||Western Europe |155 |1,421 |1,743 |5 1 | Sources: Cole: 2 1; Energy Information Administration, 2 1 Energy from some sources is more expensive than energy from othersources; thus, an environmentally preferable energy source might be opposedon economic grounds. A summary of energy reserves by energysource and global region is presented in Table 2. "Not Just A Game." Management Today (July 1996): 66-68."Energy Conservation: An Idea Whose Time Has Come Again." Business Week (19 November 2 1): 26-27.Energy Information Administration. Those whose resources arecommitted to such production may be expected to oppose any policy whichrenders their investments worthless, without compensation for their losses,regardless of how environmentally sound an alternative energy source maybe, or how environmentally harmful their energy source may be. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.