Monday, July 29, 2019

Impact of the world recession on the oil market 2008-2010 Essay

Impact of the world recession on the oil market 2008-2010 - Essay Example After a call of Emergency, AIG insurance was bailed out (2008 Global Financial Crisis and Global Recession, 2011). There had been various factors involved, which had led to the crash. The housing market failure had been one of the reasons. However, there were certain external shocks as well, which contributed to the series of financial failures. The oil shock was one major other factor. It had been an observation that prices had started to rise in 2007, compared to the price level after 9/11. A large amount of this price increase was due to the increase in the price of oil. This large amount of price increase triggered people to default on their borrowings, which had started the housing crash. A figure below shows the sharp increase in oil price from 2007 to 2008. The price had been averaging at some 60$ per barrel, while in 2008, they had increased to around $132.8. Therefore, this shows that oil shocks ‘might’ have been one of the reasons for the starting of the Global Financial Crisis. However, one would also notice that after the crisis had started, the prices of oil had suddenly dropped by a gigantic amount in 2009. Prices started to pick up in late 2009, but it was a slow increase. This in effect illustrates that the global recession caused changes in the oil market as well. Therefore, the paper shall attempt to discuss the impact of this crisis and recession on the world oil market (, n.d). â€Å"Oil has always been one of the most heavily traded commodities in the world† (Bouchentouf, 2007). It has large importance for the world economy. The demand of oil is such that it is inelastic, that means even if the price rises, people would continue to buy it. Oil is indispensable and is a raw material for various other products. However, oil has an inelastic supply as well, that means since it is a non-renewable resource, it will eventually run out. This all highlights the

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