this presentation shows the effect of oil prices on economy

1. CHANGE IN OIL
PRICES:

2. Outline:
 Background
 Research on other sources of energy
 Reasons of changes in price
 Effect in Pakistan

3. Background
 Trend (2000-2015)
 Major oil suppliers

4. Trend (2003-2015)
 2003
In 2003, crude oil was selling for $30/barrel. But due
to invasion of Iraq increased to approx. $35/barrel
because Iraq have global reserves and oil production
was decreased.
2004-2008
In late 2004 prices jumped upto $50/barrel due to
various changes i-e change in supply and demand,
decreased Iraq production etc.

5. In mid 2006 crude oil price was all time record for
trading for $79/barrel due to political tensions like
North Korea’s missile launch, on going Iraq war as
well as Israel Lebanon war.Oil prices fell to
$30.28/barrel because of financial crisis(2007-2008)
 2009-2013
Oil prices rised to $82/barrel after the financial crisis in
2009.In 2011the oil prices hit $100/barrel because of
political unrest in Egypt.For about three and half years the
price largely remained in the $90–$120 range.

6.  2014-2015
In the middle of 2014, price started declining due to a
significant increase in U.S. shale oil production and China
and Europe's demand for oil decreased. And because of
oversupply of oil by OPEC. The price of oil dropped to
$62.75/barrel and in 2015 oil prices dropped below
$50/barrel.

8. Major Suppliers

10. Research on Other Sources of
Energy
As the dramatic change in the oil prices, it gave
chance to alternative or different source of energy. In
USA it was found that large deposits of oil shale are
present from which shale oil can be extracted and
used as a energy source but it was expensive when
crude oil was around $30 to $60. As crude oil prices
increased it gave feasibility to the companies to use
that energy and now USA is in position to export oil
globally because of the large deposits of oil shale.

11. Oil Shale
Oil shale is in the form of rocks but when it is broken
down chemically, oil and gas can is produced from it.
Although it is expensive because more drilling and
extra processes are involved as compared to the
extraction liquid crude oil which much cheaper than
this. But globally the deposits of oil shale are 2.6 to
2.8 trillion barrels. And this will change global
economics in coming years.

12. 3
Increased output from Libya
Because of the civil war in Libya, oil production had decreased to 150,000 – 250,000
barrels per day. It now produces 1 million barrels a day, which may go upto 1.2
million barrels a day by next year.
2
US Oil Boom
Oil Production in the US has increased as Shale oil production has gone up to 4
million barrels per day. As such, US import of oil from OPEC has reduced by half.
1
Increased Global Supply
Global supply of oil has surpassed the global demand,
which has resulted in the fall of prices.
Factors Affecting Oil Prices:
© Hasnain Baber 2015

13. 6
Tepid Asian Demand
Countries in Asia are reducing oil subsidies, as a result of which oil demand has
fallen, which in turn has resulted in increased oil prices, thereby, reducing demand.
5
Negative European Economic Outlook
A slowdown is expected in Eurozone economies in 2015. The growth forecast has
been cut down by IMF to 0.8% in 2014 and 1.3% in 2015.
4
OPEC Infighting
There is a rivalry among OPEC members, who are trying to lower prices to maintain
their market share
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© Hasnain Baber 2015

14. Impacts of Increase in Oil
Prices:
 It is not just oil prices that rise:
With the increase in oil prices our daily life usage goods also
rise. Increase in oil prices results in increase in the prices of
other fossil fuels.
 High oil prices do not go away, except in recession:
Cost of extracting oil are also high and we can say that cost of
oil extraction will rise faster than the rate of inflation.
 Salaries do not increase to offset rising oil prices:
Salaries do not increase with the increase in oil prices.

15.  Spikes in oil prices are tend to be associated
with recessions:
Due to increase in oil prices people spend only on their
basic requirements.
 High oil prices do not “recycle” well through the
economy:
Increase in oil prices do not create much employments in
the economy.
 Housing prices are adversely affected by high
oil prices:
If a person is required to pay more for basic needs he can
not afford a house.

16.  Business Profitability is adversely affected by
high oil prices
 Impact of high oil prices does not go “away”:
Inflation effects which can be a depression in an economy
is not neutralized soon, it needs years to gain a stable
economy.
 Government Finances are especially affected by
high oil prices:
Government has to pay social security benefits to
unemployed people. It’s tax collection decreases.

17.  Higher oil prices reflect increases growth in oil
sector but decreases overall growth outside
the oil industry.
 Airline Example