How Crude Oil Hits the Consumer: following the September 11th Attacks

June 3, 2002

How Crude Oil Hits the Consumer: following the September 11th Attacks

Crude oil plays a key role in the balance of the world economy. It is an extremely valuable resource because it is so pervasive to everyone’s daily lives. Aside from the more obvious products such as heating oil and jet fuel, crude oil is used for other everyday items such as plastics and cosmetics.

Following the September 11th terrorist attacks on the United States, the crude oil prices have dropped about thirty percent. However, many motorists have not seen a change in prices for gas; this is due mainly “because so many products are culled from crude oil” (Martin). Therefore, you may notice a decrease in prices in the various products containing crude oil.

Because the prices have depleted, the value of stock decreases. This occurs because the value of the stock fluctuates with the value of the assets owned by the corporation and with the business prospects of its operations. “If the stock plunges, it could lower many stockholder’s returns” (Martin).

Exxon-Mobil is one of the world’s largest oil companies and the top five widely held stocks in the United States. This change in the crude oil economy is greatly affecting this oil distributor. Lower oil prices can raise oil companies’ drilling costs and hurt their profits. Although the oil share prices have not fallen as much as the crude oil prices have; as a result to the plunge in prices, the Exxon-Mobil shares have dropped eight percent since the terrorist attacks.

The price of a good regulates the quantity demanded and supplied. If the price is too high, the quantity of the price supplied exceeds the quantity demanded. If the price is too low, the quantity demanded exceeds the quantity supplied. There is one price at which the quantity demanded equals the quantity supplied. (Parkin, 72)

Prices rise in a process called inflation when the quantity of money increases faster than production. This process leads to a situation in which “too much money is chasing too few goods”. (Parkin, 11)

“Many analysts agree that if oil prices reverse course and shoot higher, they could shatter the global economy’s fragile recovery” (Martin). Lorenzo Codogno, head of euro zone economics at Bank of America, says: “As long as oil prices stay at the low end of the range set by OPEC, that is going to be stimulating for the global economy”. Oil prices are below the cartel’s target range, but Codogno thinks they have room to increase a few dollars without sparking inflation.

In a normal economical situation such as this, when the prices are lowered, the demand for the product increases. However, a motorist must purchase gas no matter how high or low the prices for fuel are due to the economical dependency on the automobile.

As a result to the September 11th attacks, the increase in support has caused for our crude oil prices to drop enormously. Crude oil is an extremely valuable resource to our economy. Because it has so many uses, it is difficult to trace the exact correspondence between the cost of crude oil-derived products and prices of fuel at the pump. Although it may not be directly affecting your particular lifestyle, crude oil is defiantly a commodity you should keep your eye on.

Article’s Source (11-23-2001)

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How Crude Oil Hits the Consumer
By CNN's Jillian Martin

LONDON, England (CNN) -- Consumers might not see wild swings in retail energy prices each time crude oil prices rise and fall, but oil plays a key role in the balance of the world economy.

In addition to more obvious products, like heating oil and jet fuel, plastics, cosmetics and other everyday items are derived from crude oil.

"People generally don't understand how pervasive oil and natural gas are in their lives," says Klaus Rehaag, head of oil markets for the International Energy Agency.

But discussions within between OPEC members and fluctuating export prices may not have an instant impact on our wallets.

Crude oil prices have dropped about 30 percent since September 11, as demand plummeted. "You don't always see that at the pump," says Sue Graham from Merrill Lynch.

Because so many products are culled from crude