星期五, 11月 12, 2004

How the price elasticity of demand of fuel oil relating to the oil revenues:

The net revenues of net oil export of the Organization of Petroleum Exporting Countries (OPEC) for 2004 are projected to be $286 billion, a 19% increase from 2003 revenues of $240 billion, and a 47% increase from 2002 revenues of $195 billion. (According to Energy Information Administration of U.S. in June 2004)

Rapidly fluctuating oil export revenues over the past few years also have affected non-OPEC countries, such as Russia and Mexico, significantly.

The soaring oil price is made possible as world oil production capacity and U.S. oil inventories hit historic low, and at the same time world oil demand grows strongly.

At the mid-year of 2004,

  • 1) unrest and tension in Venezuela;
  • 2) persistent low oil inventories in the United States;
  • 3) instability and attacks on oil infrastructure in Iraq (the Iraq war, which led to a cutoff of Iraqi oil exports from March to December 2003;
  • 4) troubles in Nigeria, which resulted in the loss of some oil production in that country ;
  • 5) terrorist attacks in Saudi Arabia.

I think even the world oil demand remains stable, the shortage in supply and stock of the oil would certainly cause a sharp rise in oil price that leading to a huge increase in revenues of the oil exporting countries.

Why? It is due to the low price elasticity of demand of fuel oil. Do you think so?

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