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$100 oil prices and their macroeconomic effects
7th January 2008
Oil prices remain above $100<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
The <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />BBC reports that oil prices remain above the landmark $100 mark http://news.bbc.co.uk/1/hi/business/7169157.stm
Their article says that
“Prices rose as traders digested the fact that crude stockpiles were at their lowest levels since January 2005. The weak US dollar has also increased demand for oil, which is priced in dollars, because it makes it relatively cheaper for holders of stronger currencies.”
“It’s going to have a huge impact on overall global inflation,” said Steve Rowles, a commodities strategist with CFC Seymour securities in <?xml:namespace prefix = u1 />Hong Kong”
Questions
(a) Using a supply and demand diagram illustrate the effects of the factors mentioned above on the market price of crude oil (b) Outline three ways in which a rise in oil prices might lead to an increase in global inflation (c) Explain why rising global inflation could cause macroeconomic difficulties for a country such as the UK
Further reading on the $100 crude oil price
The Guardian: The heavy price of $100 a barrel http://www.guardian.co.uk/business/2008/jan/04/oil.creditcrunch
The Times How $100 oil will change your life http://business.timesonline.co.uk/tol/business/economics/article3137515.ece
The Economist “The $100 barrel of oil is here to stay” http://www.economist.com/displayStory.cfm?story_id=10436089&fsrc=RSS
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.