OIL PRICE FLUCTUATION & MACRO-ECONOMICS WITH REFERENCE TO US & CANADA

GROUP INTRODUCTION
Name Sudesh Banare (GL) Pradip Chalke Walter Dsouza Shankar Das Abhijit Kalsekar Venkatesh Rajmanickam Ameya Sawant Roll No. 3 5 7 8 18 30 44

OIL PRICE FLUCTUATION & MACRO-ECONOMICS WITH REFERENCE TO US & CANADA

There are two theories that explain how oil was created: I. Fossil fueltheoryit is composed of dead
plants and animals that lived hundreds of millions of years ago
II.

Abiotic" theory oil comes from near the

earth's core and flows like lava in the earths crust

Oil is traditionally measured in barrels, and 1 barrel = 42 gallons. (1 gallon = 3.78 litres)

Source: http://westcoastsuccess.wordpress.com/2008/04/15/who-has-the-2nd-largest-oil-reserves-and-is-the-us-top-oil-supplier/

Middle East is the center of the world's oil supply. Estimates 700 billion barrels ie. roughly 56% of all the world's resources. The nation that has the most oil- in not just the Middle East, but the entire world- is Saudi Arabia. The kingdom, also the spiritual home of Islam, reportedly has more than 250 billion barrels. Canada is the second-largest amount of proven oil reserves in the world with close to 200 billion barrels within its borders.

US world's biggest economies with world's biggest gross domestic product(GDP), consumes more oil than any other nation. The U.S. consumes 25% of the estimated 80 million barrels of oil produced around the world every day. The country that exports the most oil to America is Canada, with Saudi Arabia second.

Second-largest amount of proven oil reserves in the world. Estimates close to 200 billion barrels within its borders. These reserves are located in Alberta's "sand pits", a terrain This Terrain makes the oil harder to extract from the earth than it is in other countries. Technological innovations have made extracting oil located in this kind of terrain easier.

http://www.youtube.com/watch?v=nwPsiqyOYRE

Demand & Supply Dollar Price($) Geographical Condition Transportation Costs Expense of refining crude oil Market Speculation Investors

The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $46,900. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan. But they also face higher barriers to enter their rivals' home markets than foreign firms face entering US markets. US firms are technological advanced, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II.

SOURCE:
http://commons.wikimedia.org/wiki/File:US_oil_price_in_dollars_from_1999_to_2008-10-17.svg

Before oil can be used, it has to be broken down in a process known as "refining." After being purchased, oil is shipped to various refineries around the world. In America, many (but certainly not all) of the oil refineries are located in the Gulf Coast region. This is a reason why oil costs tend to fluctuate during storm season A large hurricane, for example, puts oil supplied at the refineries at risk of destruction. (Oil companies are often synonymous with environmental problems in many people's minds.

How quickly and how much domestic and foreign oil producers spend on U.S. goods and services and financial and real assets will be critical in determining the effects of higher oil prices on the aggregate economy. Higher oil prices thus increase the cost of inputs; and if the cost increases cannot be passed on to consumers, economic inputs such as labor and capital stock may be reallocated causeing worker layoffs and the idling of plants, reducing economic output in the short term. Because the United States is a net importer of oil, higher oil prices affect the purchasing power of U.S. national income through their impact on the international terms of trade. Changes in oil prices can also cause economic losses when macroeconomic frictions prevent rapid changes in nominal prices for final goods (due to the costs of changing menu prices) or for key inputs, such as wages. Finally, higher oil prices cause, to varying degrees, increases in other energy prices.

Dollar Price

Production Costs

Productivity

Inflation

GDP

Recession

Canada has the tenth largest economy in the world (measured in US dollars at market exchange rates) It is one of the world's wealthiest nations, and is a member of the Organization for Economic Co-operation and Development (OECD) and Group of Eight (G8). The Canadian Economy is comprised of 69.6% Services, 28.4% Industrial, and 2% Agriculture. It's largest trading partners are US, UK and China. Canada's combined exports and imports ranked 8th among all nations in 2006, particularly of its natural resources Canada is also one of the world's highest per capita consumers of energy.

Factors often cited as having contributed to price fluctuations include:

Renewed

geopolitical concerns in the Middle East, lower spare oil

capacity,
Production

increase or decrease by the Organization of the Petroleum Exporting Countries,

Valuation

of the United States dollar against other major

currencies,
Demand

from emerging economies and significant growth in speculative trading in the oil futures market.

Source: http://www.wikinvest.com/currency/Canadian_Dollar_(CAD)

Canadian Dollar Value Production Costs

Productivity

Inflation

GDP

Recession

Canada's resource-centred economy will feel the effects of declining oil prices in a big way - for better and for worse said TD economist Derek Burleton. With the Crude prices falling, fewer dollars will flow into government coffers as oil-producing provinces collect less in royalties. But there are some indirect "offsetting benefits" from lower oil prices, especially in Central Canada, where the manufacturing sector has taken a major hit. As oil prices fall the Canadian dollar falls with it. That's another area that provides some relief to the struggling Central Canadian economy

Oil is one of the world's most important commodities, and as a result, the nations that control the bulk of the world's supply have (and exercise) a great deal of power over its availability The supply of oil in the world market has an impact on its price, and the fluctuations are passed on to consumers, especially in nations that use a lot of oil, such as the U.S High energy prices creates a significant impact on macroeconomic variables of both US & Canada such as GDP, inflation, or productivity.