economics project of oil

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ECONOMICS

NATIONAL UNIVERSITY OFMODERN

LANGUAGE LAHORECAMPUS



ECONOMIC

SOIL PRICE EFFECT ON WORLDCONOMICS

presented by Usman Ahmad Qadri MBA-2night Numl student

Asad

Iqbal MBA-2 night Numl student

Awais Ahmad Tahir



MBA-2 night Numl student

SHUMAIR

IJAZ MBA-2 night

Numl student

FahranNasir

Mba-2 Night numl student

Presented to MissFatima

This Project is Dedicated tomy Beloved

Father amp Motherfamiliesour

friends

And all the teachers howteach me hellip

--Usman Ahmad Qadri



Asad IqbalAwais Ahmad

Tahir

ShUMAIR Ijaz FAHRAN NASIR

TABLE OFCONTENT



1 Introductionhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip(1)

2 Historyhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip(3)

i Truman doctrinehelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

(3)

ii Expropriation vs economic warfare 1950helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

(3)

iii Suez(post war petroleum order)helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

(4)

iv Opec(organization of the petroleum exporting countries)helliphelliphelliphelliphelliphelliphellip

(5)

v End of 1960 to early 1970helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

(6)

vi 1973 Yom kippur Warhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

(6)

vii 1973 Oil crisis helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

(6)

viii Desert Stormhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

(8)

3 Current oil price impact on Transitioneconomyhellip(9)

i In 2000-2007helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

hellip(9)

ii In 2008 to upwardhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

(12)

4 Oil price impact on different countrieshelliphelliphelliphelliphellip(17)



i Oil price Impact on Pakistan Economyhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

(18)

ii Current situationhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

(18)

iii How Pakistan is coping with the challenge of High oil

prices(19)

5 Analysis of the Impact of high oil priceImpact on Global economyhelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

hellip(24)

i Oil price shocks and the Economy1 oil price shocks affect economic activity2 purchasing power effects3 sensitive is GDP to oil price shocks4 Economy relationship symmetric

6 Twenty Surprising ways High oil price affects theGlobal economyhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip

helliphellip(25)

Conclusionhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip(

1)-Introduction



Crude Oil

Is the raw unprocessed liquid form that comes out of theground It is also known as petroleum Crude oil is a fossil fuelmeaning that it was made nat-urally from decaying plants and animals living millions of yearsago Crude oilsvary in color from clear to tar-black and in viscosity from water to almost solid

Fuel

Any substance (liquid solid or gas) that releases its stored heat

energy and turns it into actual heat and motion energy whentreated in a certain way such as by burning or by combustion inan engine When the fuel is burned it is destroyed and leaves uswith carbon emissions

Fuel prices

Typically displayed in either Price Per Liter (Litre) in the UKEurope Australia New Zealand and South Africa and Price Per Gallon in the US and Canada

Fuel economy

Also known as Fuel Efficiency can be best described as ways todrive carefully smoother and effeciently to get achieve moremiles per gallon

Petrol

Also known as Gasoline refined from Crude oil and is approx

15 lighter in density than petroluem diesel A mixture of various hydrocarbons used as a fuel



Oil resources in the different part of world



2)- HISTORY

21)-March 12 1947 Truman Doctrine

bull New Aramco Socol Standard Oil of NJ Texaco Socony

bull Gulf Oil ndash Shell in Kuwait

bull Iranian contract between Anglo Iranian and Standard Oil

bull Socony

22)-Expropriation vs economic warfare

1950

bull No oil export no money economic trouble

bull US and Brithish assisted coup

bull The shah regained power

Oil consortium Jersey Socony Texaco

Standard of CaliforniaGulf Shell CFP

Anglo Iranian

Result The economic is trouble because they have no

trend export of oil in the world



23)-Suezbull Suez represented the post-war petroleum order

bull 23 of Europersquos oil passed through Suez

bull 23 of traffic in Suez was oil



24)- OPEC (Organization of the Petroleum Exporting Countries)



bull End of 1950s Soviet Union is the second largest oil

producer

bull Oil companies cut prices

OPECrsquos aim

bull Building national refineriesbull National integrated oil companiesbull Stabilize market for themselves 60-40 share



241)-Founding of OPECThe Organization of the Petroleum Exporting Countries (OPEC)

consisted

of thirteen countries including Iran seven Arabcountries plus Ecuador Indonesia Nigeria Angolaand Venezuela OPEC had

been formed onSeptember 14 1960 at the Baghdad conference

It was made to protest pressure by major oil companies(mostly owned by US British and Dutch nationals) to reduce

oil prices and payments to producers At first it had operated as an informal

bargaining unit for the sale of oil by Third World nations It confined itsactivities to gaininga larger share of the revenues produced by Western oil

companies and greater control over the levels of production However in the early

1970s it beganto exert its strength

25)-End of 1960s early 1970s

Recession in US and British powerbull Demand in oil was catching up with supply ndash end of surplusbull Huge economic growth fueled by oil

bull US oil production 113 million barrels per day the peak

bull More dependency on Middle Eastern oil

26)-1973 Yom Kippur warbull The Soviet Union supported Egypt and Syriabull The USA supported Israelbull World War conflict was imminentbull Oil exporters increased oil prices 100



bull Arabs cut oil supply and eventually stopped exporting toUSA

bull A weak president in the yom kippur war

contributed to theoil crisis

27)-1973 oil crisis

bull January 1973mdashThe 1973ndash1974 stock market crash beginsbull August 23 1973mdashIn preparation for the Yom Kippur War

Saudi King Faisal and Egyptian president Anwar Sadat

meet in Riyadh and secretly negotiate an accord whereby the Arabs will use the oil weapon as part of the upcomingmilitary conflict [8]

bull September 15mdashThe Organization of Petroleum ExportingCountries (OPEC) declares a negotiating front consisting of the 6 Persian Gulf State to pressure for price increases and an end to support of Israel based on the 1971 Tehranagreement

bull October 6mdashEgypt and Syria attack Israel on Yom Kippur

starting the fourth Arab-Israeli War bull October 8ndashOctober 10mdashOPEC negotiations with oil

companies to revise the 1971 Tehran price agreement fail

bull October 12mdash The United States initiates Operation Nickel

Grass an overt strategic airlift operation to provideweapons and supplies to Israel during the Yom Kippur War

bull October 16mdashSaudi Arabia Iraq Abu Dhabi Kuwait and Qatar unilaterally raise posted prices by 17 to $365 per barrel and announce production cuts

bull

October 17mdashOPEC oil ministers agree to use oil as aweapon to punish the West for its support of Israel in the Arab-Israeli war They recommend an embargo against unfriendly states and mandate a cut in exports

bull October 19mdashUS President Richard Nixon requests Congressto appropriate $22billion in emergency aid to Israelincluding $15 billion in out-right grants[9] Saudi Arabia



Libya and other Arab states proclaim an embargo on oilexports to the United States

bull October 23ndashOctober 28mdashThe Arab oil embargo is extended

to the Netherlands

bull

November 5mdashArab producers announce a 25 output cut A further 5 cut is threatened

bull November 23mdashThe Arab embargo is extended to Portugal

Rhodesia and south africabull November 27mdashUS President Richard Nixon signs the

Emergency Petroleum Allocation Act authorizing price production allocation and marketing controls

bull December 9mdashArab oil ministers agree to another five

percent cut for non-friendly countries for January 1974bull

December 25mdashArab oil ministers cancel the five percent output cut for January Saudi oil minister Yamani promises aten percent OPEC production rise

bull January 7ndashJanuary 9 1974mdashOPEC decides to freeze pricesuntil April 1

bull February 11mdash United States Secretary of State Henry Kissinger unveils the Project Independence plan to makeUS energy independent

bull February 12ndashFebruary 14mdashProgress in Arab-Israelidisengagement brings discussion of oil strategy among theheads of state of Algeria Egypt Syria and Saudi Arabia

bull March 17mdashArab oil ministers with the exception of Libya

announce the end of the embargo against the United States

December 1974mdashThe 1973ndash1974 stock market crash ends

28)-Desert Storm



bull August 2 1990 Iraqi invasion of Kuwait

bull New oil shock supply decreased

bull Loss had been compensated by December from other

sources

bull January 17 1991 Desert Storm

bull February 28 cease fire

Desert storm



3)-Current OIL PRICE IMPACT ON

TRANSITION ECONOMIES

31)-IN 2000 ndash 2007

bull The price of oil affects just about everything that is made

transported eaten and sold in the United States But withoil approaching $100 a barrel the impact on the US

economy has been less than many analysts expected

bull Time and again economists from Alan Greenspan on down

have warned that higher oil prices are inflationary They make it more expensive to drive to buy an airplane ticket and to manufacture anything from air conditioners to

zippers

bull Despite that the economy grew at an annual rate of 49

percent last quarter Thats been a surprise to Jay Bender president of a South Dakota injection-molding companyNPR interviewed him in January 2003 when oil sold for $32a barrel At the time he worried that rising oil prices would make raw materials more expensive

bull Thats going to be a challenge and if it does squeeze our

bottom line too hard it will have an impact on our ability toinvest in capital equipment and grow our business Bender said in 2003

bull Today he says the cost of raw materials has increased but

I would say probably not as much as I thought it would and maybe what I was forgetting [in 2003] hellip is when thesecosts go up they impact my competitors as well



bull So how is his company doing now

bull Were doing well he said I would say its the same

scenario as three or four years ago that our sales are

continuing to increase our top line is good we just set asales record in August and we broke it again last month inOctober

bull Bender said he has survived because by becoming more

efficient fighting back against higher prices and passing onsome increases to customers

bull Economist Ken Goldstein of The Conference Board which

compiles the Consumer Confidence Index said whatshappened to Bender is happening across the economy Hesaid it may not look like it when you see all those SUVs but the US is more energy efficient than it used to be and alternative fuels are more widely available

bull When oil gets much more expensive hellip some biofuels

become more cost effective Goldstein said We are ableto make that switch today We werent able to make that earlier

bull Federal Reserve Governor Alice Rivlin said there is another

reason the economy has survived price increases mdash lessmanufacturing

bull We dont depend on energy as much because we dont

depend on manufacturing as much Rivlin said Servicesare less energy intensive

bullGoldstein believes the days of relatively painless priceincreases are ending A lot of things are getting moreexpensive

bull For example the price of some of these sports drinks

hadnt increased in seven years It did this summer and precisely because the price of transporting that stuff by



truck to the supermarket to the grocery store got moreexpensive to the point where they had to go for a priceincrease he said

bull Goldstein says there is always a lag between the time

when oil goes up and the time its impact is felt in the

economy

bull This $100 mdash near $100 mdash a barrel crude oil thats still on

the tanker he said That hasnt even gotten to therefinery let alone to the gas station on the corner

bull When it does he said gasoline could hit $4 a gallon

bull Thats bound to be felt by consumers Whether they stop

spending will depend partly on other factors such as howwell the housing industry and the job market do But the

past few years have shown that the economy can adjust torising prices better than people once thought



$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions

32)-IN 2008CURRENT ISSUES ABOUT THE OIL PRICE

I Retail gasoline prices fell to a national average of

$222 a gallon dragged down by the falling price of

crude which now costs 60 percent less per barrel

than it did in mid-July

II Light sweet crude for December delivery fell more

than 5 percent or $325 to $5916 a barrel on the



New York Mercantile Exchange In earlier electronic

trading crude fell to $5832 its lowest point since

March 2007

III Oil prices fell two days ahead of a report from the

International Energy Agency which some analysts

expect will cut its 2009 oil demand forecast for the

third consecutive month

IV Volatile price swings are occurring almost every day

on the trading floorV While the Nymex contract is now trading near first-

half 2007 prices the difference then between daily

highs and lows was around $150 a barrel while

now the average daily range is around $550 a

barrel with recent daily peaks at $950 said analyst

Olivier Jakob of Petromatrix in Switzerland

VI Investors have grown increasingly leery about the

swooning US economy which faces its worst

recession in decades

VII Industry analysts had expected China and India

would continue buying crude if the US and other

western nations went into recession but the booming

economies of Asia have begun to show signs of fatigue

VIII Some forecasts had called for Chinas gross domestic

product to grow 10 percent next year More recent



forecasts have it closer to 6 percent the firm Cameron

Hanover said in a report Tuesday

IX A $586 billion stimulous package in China boosted markets

globally early Monday but those gains fizzled quickly and asell-off that began by midday in the US continued in Asia

and Europe Tuesday

X On Tuesday the Dow sank more than 200 points after

Homebuilder Toll Brothers Inc and Starbucks Corp gave

investors more evidence the housing market and consumer

spending are getting weaker

XI Toll Brothers said fourth-quarter revenue fell 41 percent

from the year-ago period while Starbucks reported lower

sales across the coffee chain leading to profits that fell

below analysts expectations

XII Gasoline fell again overnight dipping 2 cents to a national

average of $222 for a gallon of regular unleaded

according to auto club AAA the Oil Price Information

Service and Wright Express The average price has fallen

nearly 32 percent in the past month and according to AAA

could be headed to $2 a gallon nationally by years end

XIII Crude demand from the US the worlds largest consumer

of energy is a key driver of oil prices

XIV We saw extremely poor car sales and pretty shocking

unemployment numbers from the US last week said

Toby Hassall an analyst with Commodity Warrants

Australia in Sydney It wouldnt surprise me if oil edged

down toward $50



XV US car sales fell to a 25-year low in October while the

unemployment rate shot to a 14-year high of 65 percent

last month

XVI Oil prices fell despite signs that OPEC members are goingahead with production cuts agreed to at an emergency

meeting in Vienna Austria last month

XVII Many analysts are expecting another cut by the

Organization of Petroleum Exporting Countries which will

meet on Dec 17 in Oran Algeria

XVIII The prime minister of Qatar said Tuesday that fair oil

prices of between $70 to $90 per barrel would ensure that

expensive oil exploration could continue avoiding price

spikes in the future

XIX Sheikh Hamad Bin Jassim Bin Jabr Al-Thani said that while

oil prices below $70 a barrel may seem like a gift to

consumers it could trigger price spikes in the near future

when demand picks up

XX But for now it is waning energy demand not the supply

controlled by OPEC that is dominating crude prices



XXI Events that earlier this year threatened to cut off supply in

oil producing nations no longer appear to have the power

to send prices surging

XXII Militants in Nigeria on Monday resumed attacks on the

countrys oil installations The military said it killed eight

people while guarding a facility in the oil-rich south of the

country

XXIII Militants frequently attack oil facilities seeking to hobble

Africas biggest petroleum industry and force Nigeriasfederal government to send more oil funds to the southern

states where the crude is pumped



XXIV The focus of the market has really been on the demand

side Hassall said Id be surprised if supply side issues in

Nigeria could change the mood of the market

XXV In other Nymex trading heating oil futures fell 748 centsto $193 a gallon while gasoline prices dropped 73 cents

to $12945 a gallon Natural gas for December delivery

tumbled 398 cents to $685 per 1000 cubic feet

XXVI In London December Brent crude tumbled 6 percent or

$354 to $5554 a barrel on the ICE Futures exchange





4)-OIL PRICE IMPACT ON

DIFFERENT COUNTRIES




PAKISTAN ECONOMY

411)-CURRENT SITUATION

bull On month-on-month basis Pakistanrsquos oil import bill rose

to 1406 billion dollars during August 2008 from 9957million dollars in the corresponding month of last year

witnessing surge in oil import prices both in Arabian LightCrude and frequently hike in crude oil prices in westerncountries during the period under review

bull Given domestic shortages and emerging political

concerns for strategic reserves the countryrsquos food importbill increased to 2521 million dollars with an increase of 518 million dollars during the second month of currentfinancial year from 2003 million dollars in August 2007

However official sources and economic experts areforeseeing that currently with international crude oiltrading close to $92 per barrel 7 months low Pakistancan save $1-15b in oil import bill This will have apositive impact on current account deficit for theupcoming months of FY09 The country imported $41869million worth of wheat which along with price hikes of palm oil and other products raised the food import bill to$51m during August 2008

bull The State Bank of Pakistan reported on Tuesday that in

the category of petroleum group countryrsquos importpayments on petroleum products increased to $7542million in August 2008 against $3552 million in August2007 while country had spent $652 million on the import



of petroleum crude

bull It is important to note that in August 2008 petroleum

products with petroleum crude and palm oil in food group

imports requirements registered a strong growth ascompared to slowdown in import growth of thesecommodities witnessed during last month of FY09 (July2008)

bull The total machinery grouprsquos import payments swelled to

$4529 million in the month of August 2008 against 4331million in August 2007 showing an increase growth inpower generating machinery and textile machinery which

surged to $ 76631 million and 93196 millionrespectively during the course of period under review

bull In machinery group mobile phones growth substantially

hampered by 21 million dollars to 18351 million dollarsin August 2008 to 39380 million dollars in August 2007According to official data on foreign trade trade deficit of the country had widened by 4767 percent to 3522billion dollars during July-August 2008 from 2385 billiondollars in July-August 2007 on year-on-year basis amidrecord acceleration in the import growth caused byinflated petroleum group imports increased import of wheat and slowdown in export growth

bull During August the second month of the current financial

year trade deficit amounted at 18777 billion dollarsshowing an increase growth of 1418 percent against1644 billion dollars in the last month of prevalent fiscal(July 2008) During the particular course of past month

(August 2008) country witnessed record volume of tradedeficit soared by 4637 percent to $1877b from $1282bin the corresponding month of FY08



42)-How Pakistan is coping with the Challenge of

High Oil Prices

The trend in rising prices has become a grave concern for thedeveloping economy like Pakistan Because if this trend continued can result ininflationary pressures in theeconomy increasing budget deficit and balance of payment

problems and slowdown in theeconomic growth

421)- Pakistan Energy Sector ScenarioEnergy sector has a direct link with the economic development of a country In linewith the rising growth rate of GDP demand for energy has alsogrown rapidly Per capitaenergy consumption of the country is estimated at 14 million

Btu3the energy consumption has grown at an annual average rate of 44 percent from to 2005-08

Although it is only a fraction of other industrialising countries inthe region as Thailand and Malaysia

in Pakistan has led to rising crude oil imports from Middle East

exporters (Saudi Arab playing the lead role) In addition limited refining capacity leads toheavy dependence on the imports of petroleum products

According to the Ministry of Petroleum and Natural Resources (MPNR) the demand of

petroleum products in the country



is about 16 million tons out of which only 18 are met throughlocal resources while thebalance 82 is met through imports Therefore theinternational oil price fluctuations have a direct impact on the oil

prices in the local market

422)-Impact of High Oil Prices



In July 2008 has seen the maximum of $147 per barrel Thisrising trend in oil price in the international market has hurt theeconomies of many countries in the world including that of Pakistan The extent to which economies hurt as a result of price

shock depends on the countryrsquos dependency on oil Beforeanalysing the impact of high oil prices at the macro level the paper will look at some of the indicators showing thevulnerability of the Pakistanrsquos economy

423)-GDP Growth and Oil pricesIncreasing oil prices squeeze income and demand At a givenexchange ratemore domestic output is needed to pay for the same volume of oil imports If the domesticcurrency depreciates in response to induced payments deficitsthis further cuts the purchasing

power of domestic income over imported goods Since important trading partners are alsolikely to suffer income losses slower growth of external demand aggravates these direct impacts

The government has consumed its budgetary target of bank borrowing (Rs 130 billion) by

January 2008 further borrowing from banking or non-bankingsources may destabilize thefinancial health (Khan 2008) It is estimated that utilization of PSDP would remainsignificantly lower than allocated Rs 520 billion



Rapidly growing economies will generally experience more rapid growth of non-oil taxationand hence be better able to withstand the fiscal impacts of a

less than fully passing on of oil price increase In Pakistan non-oil taxation is more or less thesame for the last few years

424)-Oil Prices and Inflation Another channel via which high oil prices may affect macroeconomic performance is throughthe high costs of production thus reducing output

425)-Balance of Payment EffectOur petroleum imports account for 24 percent of total imports(and represented up to 44

percent of export earnings) in 2006-07 While in 1999-2000 theshare of petroleum imports

was 27 percent of total imports and accounts for 33 percent of total export earnings

Improving terms of trade would mean that a smaller volume of exports would be needed to

pay for a given quantity of imports For Pakistan this ratiohowever is decreasing that is more exports are needed to offset the burden of rising import bill



-15

-10

-05

00

05

10

15

20

25

30

35

40

Price Effect Income Effect Substitution

Effect

Net Demand

Change

2004 2005 2006 2007 2008



5)-Analysis of the impact of

high oil price on the GlobalEconomy

51)-Oil Price Shocks and the

Economy

511)-oil price shocks affect economic activity

bull Eight out of ten post WW2 recessions followed by oil price

shocks

bull Statistical evidence links oil prices to inflation higher

interest rates and higher unemployment rates

bull Consensus An inverse statistical relationship

between oil price changes and economic activity

512)-Purchasing power effects



bull Oil price increase shifts purchasing power from oil-

importing nations to oil-exporting nations

bull On net demand for oil importerrsquos goods reduced

bull Lower consumption lower GDP growth higher saving and

lower interest rates

513)-Sensitive is GDP to oil price shocks

bull Empirical studies The economyrsquos sensitivity to oil priceshocks has declined in past decade

bull Monetary policy can shape how oil price shock isexperienced slower growth versus higher inflation

bull

514)-Economy relationship symmetric

bull Rising oil prices seem to retard economic activity more

than falling oil prices stimulate it

bull Possible explanation more economic adjustment costs and

coordination problems with rising oil prices

6)-20 Surprising Ways High Oil Prices

Affect the Global Economy

When you think of high oil prices yoursquore probably reminded of huge bills at the pump and inflating costs on goods and services However the high cost of oil brings on so much morethan thatFollowing some of the lesser-known ways high oil

prices affect the global economy



1 Less Asian growth As China and India grow they relyheavily on oil which is part of the reason for the spike inprices However theyrsquore shooting themselves in the footbecause the higher prices go the less they can afford and

their growth is slowed They also use energy lessefficiently so the prices are exacerbated

2 Bargaining power With higher oil prices oil-exportingcountries hold the power This might embolden thesenations to become more assertive or demanding of othercountries in both political and economic ways

3 Alternative energy grows As oil gets more expensivealternative energy becomes much more attractiveInvestment and employment in clean technology goes up

right along with high oil prices4 European countries are marginally affected With the dollar

declining on the euro Europeans feel the rising cost of oilmuch less than others

5 Bad monetary policy Rising energy costs are a cause forconcern in most households and governments tend toreact to this sort of situation However if they react withinappropriate policies they can make things worse bysimply prolonging the inevitable

6

Exporters hold on to their moneyInstead of pumping profitsback into the global economy exporters tend to save them

That means that the global demand will tend to fall

7 Helps US dollar Although wersquore not seeing this currently intheory higher oil prices should support a stronger dollar

This is because oil is priced in dollars and demand fordollars will increase with higher oil prices and dollar-denominated investment from exporters

8 Other energy exporters flourish Exporters of non-oil energylike coal and gas flourish as consumers attempt to shift tocheaper energy

9 New capital shift As prices are hiked investors considerputting their money in other sectors which has astimulating effect on the economy

10 China has a cushion Although as a developing countryChina is hit harder by oil prices they seem to have a



cushion as investment moves away from oil and theymaintain a fixed exchange rate with the dollar

11 The US doesnrsquot have it so bad Although your wallet maybeg to differ the United States is not hit as hard as other

oil importers because we still produce about 40 of the oilwe consume

12 Government subsidies fail Some governments subsidizefuel and higher oil prices put pressure on them Thesubsidies interfere with supply and demand as consumerscontinue to demand more while prices stay relatively flat

13 Interest rates go up As higher oil prices lead to inflation andrigidities in government expenditures interest rates rise

14 Oil-producing countries donrsquot earn as much as yoursquod think

While the dollar suffers oil exporting countries are subjectto reduced purchasing power as they buy goods in euros

15 International business suffers When the cost of oil goes upflights get more expensive and corporate travel costs goup This leads to less frequent business trips tointernational locations

16 The virtual economy flourishes As the cost of transportationrises virtual work and net meetings become more popular

17 The travel sector suffers Hotels cruises airlines and others

in the travel industry are affected negatively by high oilprices because transportation costs are higher andconsumers are spending less because of stress on theirbudgets

18 Countries will stop paying bills At some point manycountries may be forced to choose between oil andinternational debt repayments As they default on theseloans theyrsquoll hurt large international finance institutions

19 Consumers save more When consumers are faced with

rising oil costs many create precautionary savings just incase things get worse

20 Consumers buy cars Although budgets are being squeezedconsumers

will buy more cars presumably to upgrade to a more fuel-efficient foreign model



7)-Conclusion

bull The economy experiences somecostly adjustment to both rising and falling oil prices

bull When oil prices rise slowingeconomic activity is further retarded by adjustment costs

bull When oil prices fall stimulated economic activity is somewhat offset by adjustment costs

bull We then have asymmetry rising oil prices retard economic activity by morethan falling prices stimulate it



ECONOMIC

SOIL PRICE EFFECT ON WORLDCONOMICS

presented by Usman Ahmad Qadri MBA-2night Numl student

Asad

Iqbal MBA-2 night Numl student

Awais Ahmad Tahir




SHUMAIR

IJAZ MBA-2 night

Numl student

FahranNasir





friends


--Usman Ahmad Qadri




Tahir


TABLE OFCONTENT






(3)


(3)


(4)


(5)


(6)


(6)


(6)


(8)



hellip(9)


(12)





(18)


(18)


prices(19)


hellip(24)



helliphellip(25)


1)-Introduction



Crude Oil


Fuel



Fuel prices


Fuel economy


Petrol








2)- HISTORY





bull Socony


1950






Anglo Iranian














producer


OPECrsquos aim





consisted


















27)-1973 oil crisis











bull







to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion








SHUMAIR

IJAZ MBA-2 night

Numl student

FahranNasir





friends


--Usman Ahmad Qadri




Tahir


TABLE OFCONTENT






(3)


(3)


(4)


(5)


(6)


(6)


(6)


(8)



hellip(9)


(12)





(18)


(18)


prices(19)


hellip(24)



helliphellip(25)


1)-Introduction



Crude Oil


Fuel



Fuel prices


Fuel economy


Petrol








2)- HISTORY





bull Socony


1950






Anglo Iranian














producer


OPECrsquos aim





consisted


















27)-1973 oil crisis











bull







to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion








Tahir


TABLE OFCONTENT






(3)


(3)


(4)


(5)


(6)


(6)


(6)


(8)



hellip(9)


(12)





(18)


(18)


prices(19)


hellip(24)



helliphellip(25)


1)-Introduction



Crude Oil


Fuel



Fuel prices


Fuel economy


Petrol








2)- HISTORY





bull Socony


1950






Anglo Iranian














producer


OPECrsquos aim





consisted


















27)-1973 oil crisis











bull







to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion










(3)


(3)


(4)


(5)


(6)


(6)


(6)


(8)



hellip(9)


(12)





(18)


(18)


prices(19)


hellip(24)



helliphellip(25)


1)-Introduction



Crude Oil


Fuel



Fuel prices


Fuel economy


Petrol








2)- HISTORY





bull Socony


1950






Anglo Iranian














producer


OPECrsquos aim





consisted


















27)-1973 oil crisis











bull







to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion








(18)


(18)


prices(19)


hellip(24)



helliphellip(25)


1)-Introduction



Crude Oil


Fuel



Fuel prices


Fuel economy


Petrol








2)- HISTORY





bull Socony


1950






Anglo Iranian














producer


OPECrsquos aim





consisted


















27)-1973 oil crisis











bull







to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion







Crude Oil


Fuel



Fuel prices


Fuel economy


Petrol








2)- HISTORY





bull Socony


1950






Anglo Iranian














producer


OPECrsquos aim





consisted


















27)-1973 oil crisis











bull







to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion










2)- HISTORY





bull Socony


1950






Anglo Iranian














producer


OPECrsquos aim





consisted


















27)-1973 oil crisis











bull







to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion
















producer


OPECrsquos aim





consisted


















27)-1973 oil crisis











bull







to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion








consisted


















27)-1973 oil crisis











bull







to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion










27)-1973 oil crisis











bull







to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion









to the Netherlands

bull














28)-Desert Storm






sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion










sources



Desert storm





31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion









31)-IN 2000 ndash 2007






zippers































economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion





























economy









$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion







$0

$10

$20

$30

$40

$50

$60

$70

$80

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

King Fahd

gets mad

Everyone

gets mad

Exxon

ValdezIraq-Iran

war ends

Tankerwar

Saddam

gets madOPEC

market

share strategy

a badidea

Warm

winter

Fund

buying

OPEC

agreement

Asian

recession

$bbl

911 Threat of

Iraq embargo

Iraq

war

Financial Markets

Discover Commodity

Investing

Chinese Demand

Nigerian

Disruptions












March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion









March 2007



























and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion











and Europe Tuesday





















down toward $50





last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion









last month
























country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion













country



















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion




















DIFFERENT COUNTRIES




PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion








PAKISTAN ECONOMY












of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion







of petroleum crude















High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion








High Oil Prices



































-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion






























-15

-10

-05

00

05

10

15

20

25

30

35

40


Effect

Net Demand

Change

2004 2005 2006 2007 2008






Economy



shocks
















bull



















6




























7)-Conclusion










Economy



shocks
















bull



















6




























7)-Conclusion















bull



















6




























7)-Conclusion














6




























7)-Conclusion

























7)-Conclusion





economics project of oil

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Transcript of economics project of oil