Volume : 4, Issue : 9, September - 2015

Global Oil Market: Macro Economic Scenario

M. Anandan, S. Ramaswamy

Abstract :

<p><p>Energy is an essential commodity for most human activities, directly (as fuel) or indirectly (to provide power, light, mobility). In traditional societies, populations rely on their own physical strength for labour, then on the power of domesticated animals, such as horses and oxen, then on water and wind, steam engines, hydrocarbons (coal, crude oil, natural gas etc) and finally &ndash; electricity (nuclear fusion and fission). Energy when combined with technology, multiplies human needs (e.g. motor fuel for cars, electricity for household appliances), and thereby playing a crucial role in pre- post-industrial and very recently IT era. For other essential needs such as space heating and cooking, the transition has been from local biomass (e.g. firewood, agriculture waste) to industrialized fuels (e.g. LPG, natural gas) and also electricity (Stern, 2011). Petroleum has become an important input in nearly every form of production function and process carried out in different economic sectors. Farming, mining, agriculture, industry, service sectors and manufacturing activities of all kinds have relied on petroleum and it&rsquo;s by products. The prices of outputs in all economic sectors, including health and wealth of many economies have depended heavily on the price of petroleum products. India has heavily relied on oil which has been playing major role in the past, present, and future for its social and economic progress. In the recent years in India, oil price has been fluctuating (increasing or decreasing) and these key issues are not constant, because they are determined by some other relative factors like demand, supply, economic growth and political situations in oil producing countries (Anandan and Ramaswamy, 2014). Energy demand or consumption has also been increasing day by day and it reached the highest rate in all over the world. In economics, the prices of any product are primarily a function of demand, supply and other economic variables. In the past decade, oil prices were on a southward drive due to the rolling demand for oil particularly in China, India and other recently emerging and growing economies of the world. It is noticed that China (Second) and India (Fourth) are the largest consumer of oil in the world. Recently, in the Global oil market, the energy demand particularly, oil demand has been growing day by day, and supply was either artificially kept low by OPEC or the market condition was disrupted due to conflict in key oil producing countries like Iraq and other OPEC federations. The gap between demand (consumption) and supply (production) resulted in high oil price upwards and it reached more than $110/ barrel (Sandeep Nayak, 2015). High oil price mostly encouraged and resulted with an enhanced oil exploration activities and countries like the US and Canada successfully drilled to extract oil from shale formations. Thus &ldquo;shale oil revolution&rdquo; is the subject matter of discussion in the global oil market. Now day&rsquo;s crude is still sliding and its price is yet to stabilize largely contributed by the deleveraging of financial positions in crude, which is exaggerating the fall in crude oil price. It is difficult to predict where exactly the crude price will bottom. Oil at $50/ barrel is probably very close to the bottom but short term movements on a fear-led deleveraging cycle are difficult to understand (The Economic Times, 2015). This paper attempts to look at the crude oil price trends witnessed in the recent years along with the high level of volatility associated with it. The relationship between crude oil prices and market fundamentals, factors influencing world oil market and demand supply gap to look at alternative opportunities, policies and strategies has been analyzed and elaborated in this paper.</p></p>