The rapid increase in oil prices demonstrates that global oil market has entered into a period of oil scarcity. It is expected that rapid growth of oil demand in emerging economies and decrease in oil supply is the main reason of oil scarcity. Oil is an important factor in the production and transportation and it is the most traded commodity in the world. In general, oil prices follow the economic law of demand and supply. According to this law, when demand increases over the supply, the prices will increase that influence both the supply and demand (Cashin, et al, 2012). At the same time, the prices of oil influence the daily life of people because products are transported and if the price of oil increases, the transportation charges also increase that increase the prices of products.
Statement of the problem
In the present, oil crisis has started because of the increased use of oil, so, the supply of oil can only fulfill its 95% demand. The statement of the problem is to explore the influence of oil scarcity on personal life of individuals. It is because oil scarcity increases the prices of oil that influence the prices of every product due to dependence on transportation.
Purpose of the study
The main purpose of the study is to identify the effects of oil scarcity on daily life of people. The increased prices of oil influence the prices of food products, increase chances of recession, and affect the housing prices and business profits adversely. Along with this, oil prices affect the global economy as well as GDP growth rate of the country.
Rationale and theoretical framework
Oil is a scare resource because its supply is lower than the demand. When supply doesn’t meet the demand at the current prices, the prices of oil must increase to improve supply and control demand. Generally, a high price of oil influences the prices of other goods and services that indicate the scarcity of oil resources.On the other hand, there are other reasons for high prices of oil such as decreasing availability of oil, exhaust use of natural resources in the long run, temporary supply shock due to Gulf war, lack of technological and geological constraints and decline in the required investment of capital (International Monetary Fund, 2011).
When the prices of oil increase due to scarcity and other reasons, various changes are occurred such as airlines are cutting their flight routes, outages are starting to use local gas stations, people are cutting their spending and stores are closing. Along with this, the prices of other goods and services are increased due to increase rate of transportation(Cashin, et al, 2012). Apart from this, food prices are increased because oil is used in growing and transporting of food products. The cost of other materials such as asphalt and chemical products are increased because they are made from oil.
Scarcity is related to the mismatch of demand and supply. When the supply of a product cannot meet its demand, the prices of product increase. When all products and resources are scarce, then inflation is occurred in the country. Oil scarcity is occurred due to declining in oil production and high demand of oil products
The IMF demonstrates that if oil supply growth is decline by 1% than, the annual global economic growth would decline by .25% point over the medium to long term. Along with this, a continuous decline in oil supply would have greater negative impact on the global economy even there is an increase in other energy substitution sources(International Monetary Fund, 2011). In general, the high prices of oil shows the scarcity of resources and low prices show its richness. At the same time, in past, short term market fluctuations were occurred that increased the prices of oil such as OPEC embargo in 1970 and Gulf war in 1991. In that condition, the prices increased up to $40 per barrel from $10 per barrel.
Along with this, the prices of oil changes relatively smooth with a gentle price that reflected issues in the world’s economy. It is the important factor that influence the world’s economy that oil is the most important energy source of primary energy with 33% of the world’s total. The word has increased rates of energy consumption growth and China is the number one in overall energy consumption (Schlesing, 2013). The energy consumption in the USA, Europe and Japan is declining while it is increasing in India, China and Middle East countries (See Image Below).
Global oil consumption
(Source: International Monetary Fund, 2011)
Relevance of Topic
This topic is related to the economics because the oil scarcity influence the global economic conditions adversely. The high prices of oil influence the GDP growth rate and security. Oil is the central of the world economy and oil scarcity impact the economic policies around the world. In emerging economies, demand for oil is increasing but the decreasing levels of supply enhance competition and tension in the oil market across the world (Kumhof and Muir, 2012). Along with this, oil is the important element in the world’s economy and prices of oil follow the economic law of supply and demand.At the same time, oil scarcity and oil prices influence the personal and daily life of individuals.
Strengths:This research study or project is based on the practical implication of the issue. In this research, the impact of oil scarcity on daily life of people are identified with the help of some facts and logics. Through the research and data, it is found that increasing oil prices influence the prices of food products because of high equipment fuel costs, increased transportation costs and increased costs in production of crops. The daily use of oil in the world is 80 million barrels. Among that, 20 million barrels are used in the USA and 70% of that uses in the transportation only(International Monetary Fund, 2011). Along with this, it is identified that oil scarcity effect the health industry in different ways such as increased transportation cost, food production, energy generation and effects on medical supplies and equipment.
Weaknesses:At the same time, it is found that prices of oil are increased due to scarcity, but sometimes, there are other issues that influence the supply such as declining oil availability, temporary supply blocks, decline in the production and transportation of oil. Along with this, there are no strict government policy related to use of energy resources and oil consumption. Government provide subsidy for energy products that increase the use of these products (Lowi, 2009). Government does not promote the other sources of energy such as solar energy, wind energy, geothermal power and renewable energy sources.
Possible counter objections:For addressing these weaknesses, government should develop the policy related to use of sustainable sources of energy. Along with this, changes are required in subsidy policy to reduce the use of energy resources and financial burden on the country(Lowi, 2009). Oil scarcity is a global problem, so, it is important for all governments to work in a cooperative manner and develop policies to encourage the use of renewable energy sources that are beneficial for the world economy.
Against of the proposed recommendations
I am against regarding the changes in subsidy policy. Government provide subsidies to keep energy products costs reasonable for their people. When the government remove this subsidy, it is uncomfortable for the middle and low class people. They can’t afford the market prices of energy products. It will increase poverty and dissatisfaction among people for the government. On the other hand, government will create privatization of energy sources and private companies will increase prices to reduce the demand and make profits.
Government should implement a social safety network to increase the living standard of their people and ensure that people don’t face poverty situation due to reducing subsidies. Along with this, government should provide subsidies for poor and needy people.
Bezjak, Frank. Global Economic Trends and Their Impact to Corporate Development. USA: BoD – Books on Demand, 2010. Print.
Cashin, Paul, et al. The Differential Effects of Oil Demand and Supply Shocks on the Global Economy. USA: International Monetary Fund, 2012. Print.
International Monetary Fund. “Oil Scarcity, Growth, and Global Imbalances”, 2011. Web. 8 December 2013 <http://www.imf.org/external/pubs/ft/weo/2011/01/pdf/c3.pdf>
Kumhof, Michael and Muir, Dirk. Oil and the World Economy: Some Possible Futures. USA: International Monetary Fund, 2012. Print.
Lowi, Miriam R.Oil Wealth and the Poverty of Politics: Algeria Compared. USA: Cambridge University Press, 2009. Print.
Schlesing, Carina. China ́s Rising Oil Consumption and Its Impact on the Global Oil market. Germany: GRIN Verlag, 2013. Print.