Thusly from 1981 to 1988 the oil production of Non OPEC countries increased by 15%, in contrast the production by the OPEC, which decreased by 7%. In 1988, the oligopolistic position of the OPEC in the oil market diminished, due to demand and higher supply by Non OPEC nations. (Alkhathlan et. al., 2013) Figure°9 Total Oil Supply (Thousand Barrels Per Day) from 1980 to 2004 In reaction to the price plunge of 1981 - 86 the OPEC tried to reduce the production quotas, in order to hold the price per barrel on a higher level. In August 1990, the oil price stopped to decline and rose again due to the Iraq invasion, which resulted into the first Gulf War. (Looney, 2003) The following years the price stayed stable around 20$ until the year 1998, when the economic boom in Asia stopped and “Indonesia, Japan, Malaysia, South Korea, and Thailand experienced a recession, which lasted from 1998 to 1999” (Manning, 1998) Due to the increase of oil production, by the OPEC and Non OPEC, in correlation with the decrease in economic activity in Asia the oil prices reached the pre-Iran revolution level from 1976. 2.1.5 11th September 2011 The burst of the “Dot-com bubble” in the first quarter of the year 2000 weakened the U.S economy (Kraay & Ventura, 2007). Additionally the non-OPEC countries expanded further their production, which resulted in a drop in oil prices in 2001- 02. To counter the decrease, the OPEC countries lowered their quota at around 3 million barrel per day in the time period between 2000 and 2002. Figure°10 Average Oil prices per barrel from 1999 to 2013 Under normal circumstance the decrease of production by the OPEC would have increased the price per barrel again, yet the attack on the Twin Towers on the 11th September 2011, weakened the U.S. economy further and the aggregate demand decreased. (Jackson, 2008) Figure°11 Total Oil Supply (Thousand Barrels Per Day) from 1999 to 2013 In the year 2002 the OPEC and Russia reduced production, to raise the oil price again over 25$. (Schlink, 2012) However, the Iraq War in 2003 and the general strike of the state-owned oil company PDVSA in Venezuela, between 2002-2003, diminished in both OPEC countries nearly
In conclusion, not all recessions were caused primarily by higher oil prices, but according to the discussion paper “The Role of Oil Price Shocks in Causing U.S. Recessions” by L. Kilian & R. J. Vigfusson (2014), the effect of this commodity, contributing to a rescission is undeniable. 3 Oil price and economical activity The following Chapter illustrates the relationship between oil price fluctuations and the economic activity, in terms of the GDP. To provide an overview of these contributions in this field is the primary aim of this thesis. Researchers are confident about the existence of this correlation. However the exact approach to model and the effects of it remain controversial. Chapter 3 is structured in the following order; 3.1 presents the literature background and is divided into, research overview and literature summary, 3.2 reviews the correlation of the economy and oil prices and 3.3 analyses the effect of increasing oil prices in relation to importing-, exporting oil countries and the stock market. Figure°14 Structure of the Chapter 3 3.1 Literature Review Due to the multi-dimensional impact of oil prices, many economists have dedicated their research to investigate the relationship between economic growth and oil prices. The literature to this date provides several different theories, which aim to build the link between this commodity and economic factors. The following section displays the findings in the chronological 3.1.1 Models in relation to the GDP and employment The oil crisis in 1973 and 1979 triggered the interest to investigate and quantify this relationship. The article, “Oil and the Macroeconomy since World War II” in the Journal of Political Economy by J. D. Hamilton (1983), stated that three to four quarters after an oil price increase the economic activity will slow down and recover after six to seven quarters. The linear correlation was proven valid in the period from 1948 to 1980. M. Gisser’s and T. H. Goodwin’s (1986) confirmed the results of Hamilton (1983), additionally they could prove that the model by Hamilton was applicable before and after the oil embargo in 1973. The book chapter, “Oil Shocks and the Dispersion Hypothesis” by P. Loungani (1986) investigated the link between oil price increase and labour market, and concluded that between 1947 - 1982 oil price shocks caused disturbances in the labour reallocation process.