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Sunday, August 25, 2019

To what extent is the global financial crisis related to greater Essay

To what extent is the global financial crisis related to greater volatility in the prices of oil and gas To what extent does it facilitate the contagion of price movements from one commodity to another - Essay Example This paper shall determine the extent to which the global financial crisis is related to greater volatility in the prices of oil and gas. It shall determine to what extent it facilitates the contagion of price movements from one commodity to another. Crude oil prices increased to as much as US$ 147 for each barrel in July of 2008 after a major commodity boom cycle caused by increased demands from developing states (UN Regional Commissions, 2009). However, by August of the same year, oil prices plunged due to the reduced demand from the member countries of the Organization for Economic Cooperation and Development (OECD). The threat of recession loomed with the financial crisis severely impacting on the worldwide economy (Institute of Development Studies, 2008). In order to end price falls, the Organization of Petroleum Exporting Countries (OPEC) announced various cuts in their output. Oil prices have since reached more stable levels with prices in the mid US$40 per barrel range. Based on the Economist Intelligence Unit (EIU), the demand for world oil fell by at least 0.2 % in 2008 and 0.4% in 2009 (UN Regional Commissions, 2009). The lower global demand was mostly caused by the lower consumption of oil and gas from developing states with initial 2008 estimates noting 2.9% decrease in oil and gas among OECD member states. The decreased demand is mostly attributed to declined demand among OECD members is primarily attributed to decreasing North America demands which declined to 2% in 2009 and 1.7% in Europe (UN Regional Commissions, 2009). Among the non-OECD countries, their demand for oil and gas increased by 1.4% in 2009 and 2.3% by 2010. Underpinning these figures was the rise of demand among developing states. However, even where such demands continued to rise, it was not insulated from the effects of the global economic crisis, especially as the economy grew at a much slower pace within the short-to-medium term (UN Regional Commissions,

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