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How Stable Is the Largest Oil-Based Economy in the World - Research Paper Example

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The study “How Stable Is the Largest Oil-Based Economy in the World” shows the contribution of Saudi Arabia to the total world supply of oil and its economy’s dependence of “black gold”. To ensure market stability, the country may opt to control production and sustain a profit-maximizing price…
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How Stable Is the Largest Oil-Based Economy in the World
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In terms of exports, Saudi Arabia also led the industry in 2009 with 8.2 million barrels a day. The country has captured 12.4% of the total world exports during the year. Russia placed second with 5.2 million followed by Iran with 2.8 billion. 20% of the country’s exports go to the United States of America. Japan and South Korea also import significant portions of Saudi’s supply (US Energy Information Administration, 2010).  On the other hand, despite the consistent boost in production of oil, the world market for the commodity has been volatile.

As demand and world prices became unstable, these factors may have been influential to the export performance for crude oil.  Figure 2 depicts the demand of the world, the US, Japan, and South Korea. The latter three mentioned were also included because these are significant importers of the country (U.S. Energy Information Administration, 2012). The demand for oil has been volatile from the 1990s to early 2000 as reflected from the fluctuations in the graph. Come 2004, downward demand trends are manifested from the world, US, Japan, and South Korea.

During this period, the US has raised its domestic production to reduce its imports. It has reduced 10% or 1 million barrels a day of their total imports primarily due to the increasing world price of the commodity. In fact, even if it is asserted that oil is a basic necessity and that consumers will be inelastic to changes in prices, stability is still vital for producers of other commodities since the effects trickle down to selling prices of their products. Figure 3 shows the volatility in the world oil prices from the 1860s to 2009.

Evidently, a spike inclining the oil price is manifested during the period. With the financial crisis in 2008, there has been a sharp decline in oil prices reaching $60 per barrel but is then again augmented in the later years. Given that oil-dependent countries heavily rely on the commodity as a source of economic growth, the fluctuations in the world price of petroleum made the performance of the industry unstable.

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