Monday, April 9, 2012

Economic Factors of the Oil and Gas Industries

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The economy is affected by many factors that determine if it is strong or weak. These factors have to do with buyers consuming goods and services and at what rate they do this. Do the goods and services that are consumed by people created wealth, jobs and a better overall economy for a country. Throughout history some economies have evolved faster and stronger than others. Policies that the government places on industry, technology and the environment can all affect the prosperity of an economy. Of the factors that affect economic growth the industry of oil and gas is one that holds a stronghold in the worlds and Americas economy today.


Oil and gas is a resource that can be used up if not conserved properly. That is why OPEC was formed, as well as organizations such as NAFTA to help regulate trade of these commodities and bring organization to a disorganized status. O.P.E.C. which stands for Organization of Petroleum Exporting Countries, is made up of 1 countries Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Indonesia, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador, and Gabon. O.P.E.C. was founded in Baghdad, Iraq in September of 160. It was organized in response to oil producing countries that did not consult with the Middle Eastern oil states before lowering their crude oil prices. The producers feared that other countries would establish monopolies. The aim of O.P.E.C. was to create a universal price between the countries, in order to ensure peace between oil producers throughout the world.


Countries representing OPEC all live and die by the constant production of oil. While this factor is used to stimulate their countries economic growth, it should be used to stimulate the building of a countrys infrastructure. Oil-rich countries should use the positive affect oil has had on their countries to build strong governments and consumer demand for other goods. This powerful infrastructure that could be built will give the economy stability and allow for a countrys GNP to grow in a slow, steady, and positive way. The building of a strong middle-class will allow for countrys to prosper for many years to come. Instead what has happened is that economies of these countries are in a state of flux. What I mean by this is that their economies are very unpredictable and unstable and their reliance on oil has made the disparity between the rich and the poor a gap that becomes too large to overcome.


One prime example of this is Brazil, Brazil has large reserves of oil in a very large country. Brazil is a developing nation and is very unstable when it comes to central governments. In the 70s and 80s Brazil made large amounts of oil from its reserves. Instead of investing the money made (from exporting oil) into their countries future, the leaders of that country used the money to make themselves rich and left the country in political and economic disarray. The middle class of Brazil became almost non-existent and there seemed to be but two classes in that country. Those classes were the extremely rich and the extremely poor. The lack of infrastructure and consumer confidence in the economy due to the mishandling of oil profits lead to many political assassinations and increased crime rates throughout the country. It has taken and will continue to take Brazil years and years to recover from these economic crisiss , which all could have been avoided had Brazils government invested in its future.


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In the United States, we have the strong infrastructure to adapt to problems that the instability of both the supply and demand of oil will cause. Countries need to look within themselves for managed growth in order to steady their economies if oil is what sparks their economy. A strong central bank and government will allow for funds to be invested in supporting the economy, the oil business, and consumerism. Once the infrastructure is set the shear reliance on oil will not be a factor, because the countrys economy will be able to handle the affect. When the day comes that oil wells ran dry and substitutes are needed the countries that will survive will be the ones that have braced themselves for the effect that this will have on their economy. Then these countries will adapt and overcome. Oil and gas should be used as helper of a countrys economy and not the passion by which it is run. The production of great income for a country and a higher GNP that oil production is something that should be able to benefit them for many years to come.


If you look at the United States as a model you will see a country that handles oil with precision. When the oil industry is in a downturn, the government can step in and regulate taxes and stimulate investment by having the central bank pump in funds that would not otherwise be used. When the oil industry is doing fine, the government can sit back and reap the prosperity of increases in employment and a rise in demand for oil. The prices will be lower for gas and oil, which means consumption will be up and the economy will be up too. Countries around the world can learn how to handle oil to the extent that it creates an agenda that the benefits far outweigh the costs.


We know that oil and gas affects the economy and that it easily regulated by strong central government and bank. The infrastructure must be built up to manage growth. The leaders of the country should be committed to the development of the oil industry. Finally the consumers should be aware of how their role in the consumption of oil will affect the economy as a whole. When all parties are aware and committed to the prosperity of their country and to the industry then the consumption, supply, demand, profits, losses, and investment towards oil will be a mutually beneficial one for the country and its people.





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