Q no 1 Evaluate and state whether SWFs can be used to mitigate against oil
price fluctuations by either diversifying the structure of exports and/or
committing to the accumulation of financial assets.
Sovereign wealth fund
A sovereign wealth fund is a government-run investment vehicle that invests capital generated
by the government, and is frequently extracted from a country's surplus reserves. SWFs favor
both the economy and the population of a nation.
In recent decades, oil prices have behaved as follows:
Since the early 1950s, the price of oil has risen and fallen as seen in Figure 1. Recessions, as
described by the National Bureau of Economic Research, are shown by gray bars in this and all
subsequent estimates. In 1973, a long spell of oil price equilibrium was broken. In reality, the
Yom Kippur War in 1973 sparked two distinct increases in oil prices, one of which was caused
by the Iranian Revolution of 1979 and the other by the Yom Kippur War in 1973. Oil prices have
been volatile since then, particularly as compared to the 1950s and 1960s.
Figure 1. Spot Oil Price ($ Barrel)
,The “real” oil price is determined by dividing the price of crude oil by the GDP deflator, as seen
in Figure 2. This eliminates the influence of inflation, giving a more realistic picture of what's
going on with the price of the commodity. You can also see that by the time this posting was
written in the spring of 2008, the actual price of oil had easily surpassed that of the late 1970s.
Figure 2. Real Oil Price
Beginning in June 2014, oil prices began to plummet (see Figure 3). Following the discovery of
the Covid-19 virus in China in early 2020 and its eventual dissemination, oil prices have fallen
even further due to lower oil demand as a result of social distancing and lockdown steps placed
in place to stop the virus from spreading across the globe. Furthermore, the Covid-19 pandemic
may have accelerated oil peak production, which is the point at which global crude oil
consumption reaches its peak. Indeed, Covid-19 could have a long-term impact on how people
function remotely.
, Figure 3 Brent oil price (US dollars per barrel)
World crude oil demand
Why are oil prices rising?
Oil prices have been pushed higher by both rising demand and concerns of supply shortages. Oil
demand has been rising globally, outpacing any increases in supply and surplus capacity. One of
the main reasons is that developing countries, especially China and India, have been rapidly
price fluctuations by either diversifying the structure of exports and/or
committing to the accumulation of financial assets.
Sovereign wealth fund
A sovereign wealth fund is a government-run investment vehicle that invests capital generated
by the government, and is frequently extracted from a country's surplus reserves. SWFs favor
both the economy and the population of a nation.
In recent decades, oil prices have behaved as follows:
Since the early 1950s, the price of oil has risen and fallen as seen in Figure 1. Recessions, as
described by the National Bureau of Economic Research, are shown by gray bars in this and all
subsequent estimates. In 1973, a long spell of oil price equilibrium was broken. In reality, the
Yom Kippur War in 1973 sparked two distinct increases in oil prices, one of which was caused
by the Iranian Revolution of 1979 and the other by the Yom Kippur War in 1973. Oil prices have
been volatile since then, particularly as compared to the 1950s and 1960s.
Figure 1. Spot Oil Price ($ Barrel)
,The “real” oil price is determined by dividing the price of crude oil by the GDP deflator, as seen
in Figure 2. This eliminates the influence of inflation, giving a more realistic picture of what's
going on with the price of the commodity. You can also see that by the time this posting was
written in the spring of 2008, the actual price of oil had easily surpassed that of the late 1970s.
Figure 2. Real Oil Price
Beginning in June 2014, oil prices began to plummet (see Figure 3). Following the discovery of
the Covid-19 virus in China in early 2020 and its eventual dissemination, oil prices have fallen
even further due to lower oil demand as a result of social distancing and lockdown steps placed
in place to stop the virus from spreading across the globe. Furthermore, the Covid-19 pandemic
may have accelerated oil peak production, which is the point at which global crude oil
consumption reaches its peak. Indeed, Covid-19 could have a long-term impact on how people
function remotely.
, Figure 3 Brent oil price (US dollars per barrel)
World crude oil demand
Why are oil prices rising?
Oil prices have been pushed higher by both rising demand and concerns of supply shortages. Oil
demand has been rising globally, outpacing any increases in supply and surplus capacity. One of
the main reasons is that developing countries, especially China and India, have been rapidly
