Oil is a commodity that is produced by over forty nations in the whole world. Its production is measured in crude oil barrels that are that are extracted every day. Its supply is its market availability. The major suppliers of oil according to International Energy Agency (IEA) in the year 2011 were said to produce 63% of oil in the whole world. As statistics show, Saudi Arabia produces 517 an equivalent percentage of 12.9, Russia came second with 510 which is an equivalent percentage of 12.7 and United States came third with 346 which is an equivalent percentage of 8.9. These three countries are the major suppliers of oil in the whole world. Iran, China, Canada, United Arab Emirates, Venezuela, Mexico and Nigeria are also some of the major producers and suppliers of oil the whole world.
The major oil buyers are the United States, despite, that they also export oil, European Union (EU) are the second major oil buyers in the whole world and China is the third nation in that list. Other countries that are know for oil importing are Japan, India, Germany, Netherlands, South Korea and France.
All commodities including oil experience price swigs when it is oversupplied and shortage. The price of crude oil may go on the same trend for several years depending on the demand changes, as well as, non-OPEC and OPEC supply, OPEC stand for Organization of the Petroleum Exporting Countries. In the twentieth century, oil prices were regulated through price or production control. In the later period of the World War II, oil prices were at an average of $28.52 for every barrel with 2010 dollar inflation adjustment. In March 2000 the OPEC took in the $22-$28 price, where oil prices only go beyond $30 for every barrel in response to conflict or war in the major producing oil countries in the Middle East (WTRG Economics, 1996-2011).
The 1990-1991 recessions lasted for eight months, from the month of July 1990 to march the following year. This led to the rise of oil prices at about 4.5 to 9 % of the Gross Domestic Product. This was before the economy of the U.S. went into a recession. The reason for the high oil prices was because of oil disruptions from Middle East. The high prices led to a drastic drop of oil demand in the U.S., dropping by almost 1000000 barrels per day (Whipple, 2011).
Many countries do impose different trade barriers and also apply custom tariffs as well as non-trade barriers. This is common to most countries in the world. By doing an analysis partial equilibrium in performing tariff application, done by good substitute supply as well as demand curves, which is based on the assumption that the domestic goods’ prices are made to go up through introduction of tariffs. Through making analysis of tariff application done by the use of demand curves and goods supply substitute partial equilibrium analysis can be done (Hussain, 2012).
If a small country imposes import tariffs, the substitute commodity prices tend to rise for the customer. This usually happens to the extent which the tariff has been imposed. This is done through assuming that imposing tariffs increases prices of goods in the domestic market. This also affects the prices of exports, as producers try to balance the inputs and the profits they want to generate. When the government imposes tariffs on imports, the prices of commodities in an oil producing country like Nigeria goes up, and to counter this, the price of oil they are exporting has to go up to in order to create a balance. Bagheri et. al, found out that
We can survey the respective effects of the general equilibrium of tariff by developing the trade standards and by the assumption that the collected income from applying tariff again is distributed among the citizens as subsides or tax exemption. According to the Stapler-Samuelson theorem, any increase on the relative price of a commodity by applying tariff, causes efficiency increase or income of the factor which are used more in the production. (2001)
Non-tariff barriers are usually put on barriers to imported commodity amounts, other than imposing tariffs. This happens especially in the quota barriers. The same effect is felt in production and consumption, especially when the government puts import licences on auction, through a competitive market that is distributive. Application of ration of income would lead to a transfer of the curves of demand and supply, which causes the domestic income to change.
The general tariff equilibrium can be can be surveyed and the respective effects changed through trade standards development assuming that the income collected from tariff application is again distributed among the citizens. Bagheri et.al supports this by stating that
In a third world country like Nigeria where Oil is the major export commodity and quite a number of imports coming in, tariff and non-tariff barriers come in play in determining the prices of the goods imported, whereas these goods have quite an effect on the prices of the oil being exported. This is not without considering the prices that are set by the global market.
References
Bagheri et.al. (2001) Global Market Trade Policy Analysis for Petroleum Oils and Oils Obtained from Bituminous Minerals, Crude retrieved from http://www.businessjournalz.org/articlepdf/EFR_2502july2512d.pdf
Hussain, I. (2012) Reevaluating NAFTA: Theory and Practice. Basingstoke. Palgrave Macmillan.
Whipple, T. (2011). The peak oil crisis: Edging towards recession. Retrieved from http://www.postcarbon.org/article/292411-the-peak-oil-crisis-edging-towards
WTRG Economics. (1996-2011). Oil Price History and Analysis. Retrieved from http://www.wtrg.com/prices.htm
