GRM 2010 GRM 2011

Abstract Details

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Title of Paper:
Economic, Political and social factors affecting the determination of oil prices, what are the challenges facing the GCC countries
Paper Proposal Text :
“ Economic, Political and Social factors affecting the determination of oil prices, what are the challenges facing the GCC countries ”

1. Introduction

The most important factors affecting the price of oil are , developments in supply and demand and other economic factors coincided with geopolitical factors and , speculations, climate factors, scarcity factors, technical factors, cash factors , the role of OPEC policy and the production of unconventional oil . These are the most important factors affecting the price of oil in the long term.

The decline in oil prices since mid-2014 was partly because of a broader trend of commodity price declines that had been well underway. In contrast, oil prices fluctuated within a narrow band around $/ 105/ barrel (bbI) until June 2014. Through much of 2012 and 2013, the impact of softening global demand on oil markets was offset by concerns about geopolitical risks and pricing policies exercised by OPEC. As some of these factors unwound, oil prices started to drop steeply in June 2014. By February 2015, the cumulative fall in oil prices was significantly larger than that in other commodity prices since their peaks in 2011 (World Bank group, 2015).

According to the fluctuations of the U.S dollar, empirical estimates of the size of the U.S dollar, effect cover a wide range: the high estimates suggest that a 10 percent appreciation is associated with a decline of about 10 percent in the oil price, whereas the low estimate suggest 3 percent or less
(zhangetal , 2008; and Akram 2009). While Baumeister and Kilian (2015) argue that movements in the U.S dollar have no independent impact on the oil price.

Speculation in oil markets can be attributed to disruption of oil prices, it takes three forms; (i) changes in inventories on expectations of changing market conditions (ii) financialization of commodities as assets; and (iii) outright markets manipulation (world bank group, 2015). Speculative demand shifts also played a role during oil price shock episodes in 1979, 1986 and 1990 (Kilian and Murphy, 2014). However, there is not yet broad agreement on the role of speculation and changes in inventories in the 2014-15 oil price drop ( Beidas –strom and pescatori; Baumeister and kilian 2015).

There are several reasons to study economic diversification besides fluctuations in the oil prices. As pointed out by Kubursi , “ were oil supplies everlasting, and the demand for oil strong and continuous, economic diversification would be pointless. The government of the region would instead need only to ensure the distribution of oil revenues among the population’ (kuburs,1984). However, in the real world, Oil resources are finite and experience shows that both the price of oil and the demand for oil have fluctuated considerably. A second factor that has brought diversification on the forefront of economic policy in the GCC in the simple fact that oil revenues quickly crowd out any other economic activity.

These three challenges, income from oil is finite, fluctuates and is practically the only source of the wealth, have placed the issue of economic diversification on the political agenda in the Gulf countries Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and The United Arab Emirates ( UAE) since oil was discovered.

Employing quantitative analysis, an empirical and comparative approaches, this paper aim to achieve the following goals:

1. to investigate the economic, political and social factors affecting the price of oil determination.
2. to build an econometric model to indicate exactly the independents variables explain the behavior of price of oil in econometrics approach and according to the economic theory and with respect to economic fundamentals of oil , during 1995-2015, by using different approaches, linear and nonlinear representation , in order to filter out many of the endogenous factors that have historically contributed to change in oil prices.
3. to diagnose a number of challenges face the GCC countries relating , to the oil industry itself , the economic management of the oil wealth, investment and the continuous fluctuations in the oil prices.
4. to review the different consequences and policy implications of the fluctuations of the oil prices on GCC countries.
5. to specify the economics sectors which are targets for the diversification efforts.

To achieve these objectives, the following questions will be asked:

1. Which are the most important variables (factors) that affect the price of oil in order to give GCC governments some insight on where to focus to control the price of oil?
2. What is the most important challenge to ensure that the oil wealth is managed effectively?
3. What are the changes that reduced the share of oil in global energy balance, with it, the influence of GCC oil exporters?
4. What do lead to the natural conclusion is that the disruptions are important factors in causing the economic downturns?
5. What do make planning in the GCC countries more difficult?
Propose solutions
Why I will do it in this way ? because Econometrics, the result of a certain outlook on the role of economics, consists of application of mathematical statistics to economic data to lend empirical support to the models constructed by mathematical economics and to obtain numerical results. Furthermore, Econometrics defined as the social science in which the tools of economic theory, mathematics, and statistical inference are applied to the analysis of economic phenomena.

The plan of the study
Following the above Introduction, this study proceeds with reviewing the causes of the fluctuations in the oil prices. Section 3 builds the econometric Model of the world Oil prices, while section 4 explains the different challenges face the GCC countries. Economic and financial consequences and policy implications will be covered by section 5, and section 6 presents concluding remarks.


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- Baumeister, C. and L. Kilian. 2015. \" Understanding the Decline in the Price of Oil since June 2014. \" CFS Working Paper No. 501.
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