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The Decrease of Prices of the Saudi Oil and Its Impact on the International Economy
The industrialization across the globe owes its development to the oil. Crude oil has been produced, refined, and sold in the international market since 1850’s. Oil serves as a paramount scarce resource, which still has no cost effective alternatives, with the biggest companies in the world by 2014, Sinopec Group and the China National Petroleum Corporation, operating as oil and gas producers. In the year 2013, the International Energy Agency observed that the top ten oil-producing countries in the world accounted for more than 63% of total oil production in the world. By the end of the year 2014, Russia produced 10.9 million barrels of the crude oil every day while the Saudi Arabia produced 9.9 million barrel per day. Russia and Saudi Arabia featured as the top oil producers in the world in the year 2014 (Simmons, 2014).
The world is approximated to have 1.2 trillion oil barrels of oil reserve. According to Frieden & Rogowski (2015), there is an increasing trend in the total global oil production per year. In the year 2015, the supply of oil rose by approximately 1 mb/d every month to reach 95.2 mb/d. the OPEC production of oil recorded its highest monthly oil production increase in the four years. On March of 2015, the oil production by the OPEC countries was 31.02 mb/d, which was catalysed by the sharp output by the Iraq, Saudi Arabia, and Libyan supplies. Similarly, there has an increase in the demand for oil between the year 190 and 2010. Within this period, the oil demand rose by 40% from 60 oil barrels per day to more than 90 oil barrels per day.
The 2015 global oil demand forecast has been raised by 90 kb/d to reach 93.6 mb/d, which is a gain of 1.1 mb/d on the year. The notable growth and acceleration of the demand for oil follows the steadily improving worldwide economic backdrop. However, the oil demand has been relatively inelastic with respect to the price, which is attributed to the fact that oil has very few direct substitutes. Similarly, the demand for the oil has been relatively inelastic with respect to the income of the…………..