Oil Prices Case Study

OUTLINE

Introduction

A. What effects can produce oil prices increase?

a. Brief history and evolution in oil markets

b. Causes of the increment in oil prices

B. Colombia on the two sides of oil prices rise effects

a. Brief description of effects

b. Brief history of petroleum industry

Body

I. International context

a. Global situation of oil prices

b. Volatility and Dutch disease

II. Colombia Case

a. analysis of effects in the macroeconomic view: inflation and currency appreciation

Conclusion

A. Which are the solutions to control the harmful effects of oil prices increase

B. What strategies are implementing in Colombia to deal with the effects of oil prices increase.

Thesis statement

Since the 1970s the world hadn't experienced an oil increase like the one that is happening these days where many countries are concerned about the effects that this phenomenon can bring to their economies. As an oil exporting country, Colombia has to deal with a lot of challenge in order to transform all the revenues from petroleum into benefits to their society. However there are some effects that can bring some instability to this small economy, especially the one that international markets create a speculative bubble which can end in the Dutch disease. ‘The Dutch disease is a major market failure originating in the existence of cheap and abundant natural or human resources that keep the currency of a country overvalued for an undetermined period of time; thus it makes the production of tradable goods using technology in the state-of-the-art unprofitable’(Bresser-Pereira, 2008, p.1). In order to prevent this disease the Colombian Government has to control inflation and to deal with the currency appreciations problem which can put the country in a difficult position to compete in the international markets.

From the beginning of the new century and as a consequence of the demand of emerging economies like China and India, the oil market has constituted the most important matter in international trade because of the rapid increase in prices. The increase in demand in the world economy that resulted from strong growth in lending and high asset values helped raise output growth outside the OECD, and this in turn put upward pressure on oil prices