• Home
  • About RSIS
    • Introduction
    • Building the Foundations
    • Welcome Message
    • Board of Governors
    • Staff Profiles
      • Executive Deputy Chairman’s Office
      • Dean’s Office
      • Management
      • Distinguished Fellows
      • Faculty and Research
      • Associate Research Fellows, Senior Analysts and Research Analysts
      • Visiting Fellows
      • Adjunct Fellows
      • Administrative Staff
    • Honours and Awards for RSIS Staff and Students
    • RSIS Endowment Fund
    • Endowed Professorships
    • Career Opportunities
    • Getting to RSIS
  • Research
    • Research Centres
      • Centre for Multilateralism Studies (CMS)
      • Centre for Non-Traditional Security Studies (NTS Centre)
      • Centre of Excellence for National Security (CENS)
      • Institute of Defence and Strategic Studies (IDSS)
      • International Centre for Political Violence and Terrorism Research (ICPVTR)
    • Research Programmes
      • National Security Studies Programme (NSSP)
      • Studies in Inter-Religious Relations in Plural Societies (SRP) Programme
    • Future Issues and Technology Cluster
    • [email protected] Newsletter
    • Other Research
      • Science and Technology Studies Programme (STSP) (2017-2020)
  • Graduate Education
    • Graduate Programmes Office
    • Overview
    • MSc (Asian Studies)
    • MSc (International Political Economy)
    • MSc (International Relations)
    • MSc (Strategic Studies)
    • NTU-Warwick Double Masters Programme
    • PhD Programme
    • Exchange Partners and Programmes
    • How to Apply
    • Financial Assistance
    • Meet the Admissions Team: Information Sessions and other events
    • RSIS Alumni
  • Alumni & Networks
    • Alumni
    • Asia-Pacific Programme for Senior Military Officers (APPSMO)
    • Asia-Pacific Programme for Senior National Security Officers (APPSNO)
    • International Strategy Forum-Asia (ISF-Asia)
    • SRP Executive Programme
    • Terrorism Analyst Training Course (TATC)
  • Publications
    • RSIS Publications
      • Annual Reviews
      • Books
      • Bulletins and Newsletters
      • Commentaries
      • Counter Terrorist Trends and Analyses
      • Commemorative / Event Reports
      • IDSS Paper
      • Interreligious Relations
      • Monographs
      • NTS Insight
      • Policy Reports
      • Working Papers
      • RSIS Publications for the Year
    • Glossary of Abbreviations
    • External Publications
      • Authored Books
      • Journal Articles
      • Edited Books
      • Chapters in Edited Books
      • Policy Reports
      • Working Papers
      • Op-Eds
      • External Publications for the Year
    • Policy-relevant Articles Given RSIS Award
  • Media
    • Great Powers
    • Sustainable Security
    • Other Resource Pages
    • Media Highlights
    • News Releases
    • Speeches
    • Vidcast Channel
    • Audio/Video Forums
  • Events
  • Giving
  • Contact Us
Facebook
Twitter
YouTube
RSISVideoCast RSISVideoCast rsis.sg
Linkedin
instagram instagram rsis.sg
RSS
  • Home
  • About RSIS
      • Introduction
      • Building the Foundations
      • Welcome Message
      • Board of Governors
      • Staff Profiles
        • Executive Deputy Chairman’s Office
        • Dean’s Office
        • Management
        • Distinguished Fellows
        • Faculty and Research
        • Associate Research Fellows, Senior Analysts and Research Analysts
        • Visiting Fellows
        • Adjunct Fellows
        • Administrative Staff
      • Honours and Awards for RSIS Staff and Students
      • RSIS Endowment Fund
      • Endowed Professorships
      • Career Opportunities
      • Getting to RSIS
  • Research
      • Research Centres
        • Centre for Multilateralism Studies (CMS)
        • Centre for Non-Traditional Security Studies (NTS Centre)
        • Centre of Excellence for National Security (CENS)
        • Institute of Defence and Strategic Studies (IDSS)
        • International Centre for Political Violence and Terrorism Research (ICPVTR)
      • Research Programmes
        • National Security Studies Programme (NSSP)
        • Studies in Inter-Religious Relations in Plural Societies (SRP) Programme
      • Future Issues and Technology Cluster
      • [email protected] Newsletter
      • Other Research
        • Science and Technology Studies Programme (STSP) (2017-2020)
  • Graduate Education
      • Graduate Programmes Office
      • Overview
      • MSc (Asian Studies)
      • MSc (International Political Economy)
      • MSc (International Relations)
      • MSc (Strategic Studies)
      • NTU-Warwick Double Masters Programme
      • PhD Programme
      • Exchange Partners and Programmes
      • How to Apply
      • Financial Assistance
      • Meet the Admissions Team: Information Sessions and other events
      • RSIS Alumni
  • Alumni & Networks
      • Alumni
      • Asia-Pacific Programme for Senior Military Officers (APPSMO)
      • Asia-Pacific Programme for Senior National Security Officers (APPSNO)
      • International Strategy Forum-Asia (ISF-Asia)
      • SRP Executive Programme
      • Terrorism Analyst Training Course (TATC)
  • Publications
      • RSIS Publications
        • Annual Reviews
        • Books
        • Bulletins and Newsletters
        • Commentaries
        • Counter Terrorist Trends and Analyses
        • Commemorative / Event Reports
        • IDSS Paper
        • Interreligious Relations
        • Monographs
        • NTS Insight
        • Policy Reports
        • Working Papers
        • RSIS Publications for the Year
      • Glossary of Abbreviations
      • External Publications
        • Authored Books
        • Journal Articles
        • Edited Books
        • Chapters in Edited Books
        • Policy Reports
        • Working Papers
        • Op-Eds
        • External Publications for the Year
      • Policy-relevant Articles Given RSIS Award
  • Media
      • Great Powers
      • Sustainable Security
      • Other Resource Pages
      • Media Highlights
      • News Releases
      • Speeches
      • Vidcast Channel
      • Audio/Video Forums
  • Events
  • Giving
  • Contact Us
  • instagram instagram rsis.sg
Connect

Getting to RSIS

Map

Address

Nanyang Technological University
Block S4, Level B3,
50 Nanyang Avenue,
Singapore 639798

View location on Google maps Click here for directions to RSIS

Get in Touch

    Connect with Us

      rsis.ntu
      rsis_ntu
      rsisntu
    RSISVideoCast RSISVideoCast rsisvideocast
      school/rsis-ntu
    instagram instagram rsis.sg
      RSS
    Subscribe to RSIS Publications
    Subscribe to RSIS Events

    RSIS Intranet

    S. Rajaratnam School of International Studies Think Tank and Graduate School Ponder The Improbable Since 1966
    Nanyang Technological University Nanyang Technological University

    Skip to content

     
    • RSIS
    • Publication
    • RSIS Publications
    • CO08118 | The Dynamics of Global Oil Prices
    • Annual Reviews
    • Books
    • Bulletins and Newsletters
    • Commentaries
    • Counter Terrorist Trends and Analyses
    • Commemorative / Event Reports
    • IDSS Paper
    • Interreligious Relations
    • Monographs
    • NTS Insight
    • Policy Reports
    • Working Papers
    • RSIS Publications for the Year

    CO08118 | The Dynamics of Global Oil Prices
    Alvin Chew

    13 November 2008

    download pdf
    RSIS Commentary is a platform to provide timely and, where appropriate, policy-relevant commentary and analysis of topical and contemporary issues. The authors’ views are their own and do not represent the official position of the S. Rajaratnam School of International Studies (RSIS), NTU. These commentaries may be reproduced with prior permission from RSIS and due credit to the author(s) and RSIS. Please email to Editor RSIS Commentary at [email protected].

    Commentary

    Oil prices have declined in recent months in tandem with the slowdown in the global economy. Its significant tumble by more than 50 percent in a short span of three months has nonetheless triggered analysts to wonder if the current prices are in the stable range of trading.

    EARLIER THIS year, analysts were projecting oil prices to climb to close to US$200 per barrel by the end of 2008. However, the recent financial meltdown in the United States, unleashing a possible global economic recession, has seen a sharp downward trend on global oil prices in the wake of weaker demand. Global oil prices have tumbled in recent months from its historical peak of US$147 per barrel in July. However, its current trading range of just above US$60 per barrel is still significantly higher compared to its prices of around US$20 during the previous recession in 2001. Are we now expecting oil prices tumble to below US$50 per barrel?

    Downward trend in oil prices

    The surge in oil prices was partly due to speculation and trading options offered by financial institutions. A range of financial products in the form of derivatives allowed the commodity to be bought at a set price for future delivery, without any real crude oil being traded. With the recent woes in Wall Street, speculators withdrew from the market, resulting in massive price declines in the trading of crude oil. The economic slowdown sent oil prices tumbling further as global demand weakened.

    The Organization for Petroleum Exporting Countries (OPEC) holds the key to global oil production and could affect oil prices by controlling oil output. However, it is also facing stiff competition from non-OPEC countries like Russia and Norway and needs to keep prices at a competitive level. In addition, with the global recession looming, high oil prices would dampen the economy further.

    The advent of leading edge technology to extract more oil and boost production capabilities has punctured the myth that crude oil is running out faster than initially expected. More oil fields are being discovered, along with more accurate sensing technologies to assess the actual quantity of oil in current reserves. These developments as well as the downstream refining of crude oil will allow easier access to a larger pool of resources available, increasing the potential supply and easing the pressures on oil prices.

    Oil prices in the longer term

    The primary reason for rising global oil prices is the market fundamentals of supply and demand. Rising powers like China and India will require large imports of oil to drive their economies. The demand for oil in the developing countries is also set to rise in the long term.

    Oil is used mainly in the transportation sector. The growing numbers of car owners in developing nations, as a consequent of lifestyle improvement, will set off a boom in their transport industries. In time to come, hybrid cars running on alternative fuels could become more prominent. However, governments would require large investments to introduce ‘green-car’ policies and build the necessary infrastructure to support cars running on alternative fuels.

    The price of oil is also sensitive to world events that threaten its production capabilities. The increasing frequency of natural disasters and man-made catastrophes on oil production facilities will lead to nations stocking up more oil for their strategic reserves to minimize any disruptions to their economies.

    As more advanced methods are used to extract oil to meet rising global demand, the production cost of crude oil has also increased substantially. Factoring inflationary costs over a period of time, it is unlikely to lead to low oil prices as in the past.

    Strategies for Importing Nations

    The global spot market for oil is testing psychological benchmarks during this unsettling period of an impending economic recession. It is likely that the current downward spiral will lead to oil prices over-shooting, resulting in prices below the expected range. As the market functions on the basis of demand and supply, the implosion of oil prices could suggest the continuing level of speculation involved in oil trading. Any large purchase of the commodity is likely to result in a surge of oil prices, and the subsequent inflation of its downstream products.

    Oil importing nations should strive to diversify their energy mix and continue to develop alternative sources even when oil prices are declining. It remains logical that countries most in need of oil as their economic drivers continue to pay for high oil prices. Nations that embark on alternative and renewable resources will however eventually see their efforts being paid off in the long run.

    About the Author

    Alvin Chew, PhD, is Research Fellow with the S. Rajaratnam School of International Studies, Nanyang Technological University. Formerly with the Defence Science and Technology Agency, he has been working on defence-related issues and energy security in the Asia Pacific region. 

    Categories: Commentaries / Non-Traditional Security / Global

    Last updated on 07/06/2022

    RSIS Commentary is a platform to provide timely and, where appropriate, policy-relevant commentary and analysis of topical and contemporary issues. The authors’ views are their own and do not represent the official position of the S. Rajaratnam School of International Studies (RSIS), NTU. These commentaries may be reproduced with prior permission from RSIS and due credit to the author(s) and RSIS. Please email to Editor RSIS Commentary at [email protected].

    Commentary

    Oil prices have declined in recent months in tandem with the slowdown in the global economy. Its significant tumble by more than 50 percent in a short span of three months has nonetheless triggered analysts to wonder if the current prices are in the stable range of trading.

    EARLIER THIS year, analysts were projecting oil prices to climb to close to US$200 per barrel by the end of 2008. However, the recent financial meltdown in the United States, unleashing a possible global economic recession, has seen a sharp downward trend on global oil prices in the wake of weaker demand. Global oil prices have tumbled in recent months from its historical peak of US$147 per barrel in July. However, its current trading range of just above US$60 per barrel is still significantly higher compared to its prices of around US$20 during the previous recession in 2001. Are we now expecting oil prices tumble to below US$50 per barrel?

    Downward trend in oil prices

    The surge in oil prices was partly due to speculation and trading options offered by financial institutions. A range of financial products in the form of derivatives allowed the commodity to be bought at a set price for future delivery, without any real crude oil being traded. With the recent woes in Wall Street, speculators withdrew from the market, resulting in massive price declines in the trading of crude oil. The economic slowdown sent oil prices tumbling further as global demand weakened.

    The Organization for Petroleum Exporting Countries (OPEC) holds the key to global oil production and could affect oil prices by controlling oil output. However, it is also facing stiff competition from non-OPEC countries like Russia and Norway and needs to keep prices at a competitive level. In addition, with the global recession looming, high oil prices would dampen the economy further.

    The advent of leading edge technology to extract more oil and boost production capabilities has punctured the myth that crude oil is running out faster than initially expected. More oil fields are being discovered, along with more accurate sensing technologies to assess the actual quantity of oil in current reserves. These developments as well as the downstream refining of crude oil will allow easier access to a larger pool of resources available, increasing the potential supply and easing the pressures on oil prices.

    Oil prices in the longer term

    The primary reason for rising global oil prices is the market fundamentals of supply and demand. Rising powers like China and India will require large imports of oil to drive their economies. The demand for oil in the developing countries is also set to rise in the long term.

    Oil is used mainly in the transportation sector. The growing numbers of car owners in developing nations, as a consequent of lifestyle improvement, will set off a boom in their transport industries. In time to come, hybrid cars running on alternative fuels could become more prominent. However, governments would require large investments to introduce ‘green-car’ policies and build the necessary infrastructure to support cars running on alternative fuels.

    The price of oil is also sensitive to world events that threaten its production capabilities. The increasing frequency of natural disasters and man-made catastrophes on oil production facilities will lead to nations stocking up more oil for their strategic reserves to minimize any disruptions to their economies.

    As more advanced methods are used to extract oil to meet rising global demand, the production cost of crude oil has also increased substantially. Factoring inflationary costs over a period of time, it is unlikely to lead to low oil prices as in the past.

    Strategies for Importing Nations

    The global spot market for oil is testing psychological benchmarks during this unsettling period of an impending economic recession. It is likely that the current downward spiral will lead to oil prices over-shooting, resulting in prices below the expected range. As the market functions on the basis of demand and supply, the implosion of oil prices could suggest the continuing level of speculation involved in oil trading. Any large purchase of the commodity is likely to result in a surge of oil prices, and the subsequent inflation of its downstream products.

    Oil importing nations should strive to diversify their energy mix and continue to develop alternative sources even when oil prices are declining. It remains logical that countries most in need of oil as their economic drivers continue to pay for high oil prices. Nations that embark on alternative and renewable resources will however eventually see their efforts being paid off in the long run.

    About the Author

    Alvin Chew, PhD, is Research Fellow with the S. Rajaratnam School of International Studies, Nanyang Technological University. Formerly with the Defence Science and Technology Agency, he has been working on defence-related issues and energy security in the Asia Pacific region. 

    Categories: Commentaries / Non-Traditional Security

    Last updated on 07/06/2022

    Back to top

    Terms of Use | Privacy Statement
    Copyright © S. Rajaratnam School of International Studies. All rights reserved.
    This site uses cookies to offer you a better browsing experience. By continuing, you are agreeing to the use of cookies on your device as described in our privacy policy. Learn more
    OK
    Latest Book
    CO08118 | The Dynamics of Global Oil Prices

    Commentary

    Oil prices have dec ...
    more info