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Macroeconomics Variables of Oil Prices

A macroeconomic variables of oil prices research paper explores the macroeconomic variables that cause oil prices to rise and fall. The

The research paper demonstrates that there are a number of reasons why these macroeconomic variables can only be delineated with considerable difficulty.

  1. The majority of studies have focused on the macroeconomic effects of oil price changes, rather than on the macroeconomic causes of such changes.
  2. Despite intense research on oil prices, particularly within the last 30 years, certain misperceptions remain widespread and radical disagreements persist among economists over several fundamental variables that affect the price of oil.
  3. The major causes of shifting oil prices in recent decades have not been purely macroeconomic: oil prices have more often risen and fallen in response to political instability and other non-economic variables than because of macroeconomic conditions. Macroeconomics Variables of Oil Prices

Determining the macroeconomic causes of changes in oil prices is made difficult by the fact that most economic research papers on oil prices consider oil as a major input in global economics performance. As such, the emphasis is on the impact of oil prices on macroeconomic performance—on how “movements in the price of oil … drive the economy”, instead of on the macroeconomic factors that determine oil prices. Moreover, particularly since the oil price shock of 1973-4, economists and other researched have been engaged in intense, unresolved debates regarding such fundamental issues as the relationship between the U.S. energy sector and national income. Seemingly solid empirical investigations of the connections between oil prices, oil consumption, and real economic output have generated radically divergent results.

The alarmists may not be correct in their predictions of sudden spikes in the price of oil, but since the oil picture is murky and uncertain, and since prices are already too high, and since we are going to run out of easily recoverable oil sooner or later, it would make great sense to exercise the utmost caution with respect to this issue and to begin to move away from reliance on petroleum. Simultaneously, we should begin to put big sums of money into research and development projects focusing on the development of alternatives to oil. This last initiative should focus on transportation fuels as it is in that sector that the need for oil is most acute.

It is to be noted that there are some energy experts who believe that even if the amount of oil remaining in the ground is robust and that the supply is a secure one, the use of oil is still problematic. Maugeri states, “Cheap oil has always been and remains a curse for industrialized countries…It constricts the development of expensive energy alternatives and new oil regions. It discourages conservation and perpetuates lax Western consumption habits”. It also forces us to be reliant on oil from the Middle East. Maugeri argues, as we do, for policies that would promote conservation and technological innovation in the energy field. In effect, he reaches the same place in his analysis that those who operate from the exact opposite premise—that we are running out of oil—reach.

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