Oil Prices After 9/11: Difference between revisions

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We will discuss the economic situation of the United States leading up the the attacks on September 11th.
We will discuss the economic situation of the United States leading up the the attacks on September 11th.
<br>Soon after the attacks on 9/11, economists from the National Bureau for Economic Research announced that the country was in a recession and had been since March, 2001
<br>Soon after the attacks on 9/11, economists from the National Bureau for Economic Research announced that the country was in a recession and had been since March, 2001
<br><br>In interpreting the private-sector economic impact of an event, the circumstances of the economy
immediately prior to the event must be taken into account. The NYC economy out-performed the
nation in the first quarter of 2001, with jobs rising and unemployment falling and inflation lower
than the national average. This changed in the second quarter, with four of five economic
indicators deteriorating. The equity value of NYC-based dot-coms, which was closely negatively
related to the demand by dot-coms for office space, in second-quarter 2001 was one-third the value
of a year earlier and one-seventh the value of two years earlier. Manhattan commercial officevacancy
rates in second-quarter 2001 were nearly twice the level of a year earlier. Then, in August,
NYC private-sector jobs fell by a seasonally adjusted 8,200 jobs, the steepest decline in more than
five years (total jobs fell by 10,300). The securities industry shed 1,600 jobs. Unemployment rose
sharply to 5.8 percent from 5 percent in July.1


=Economics in the US After 9/11=
=Economics in the US After 9/11=
Here we will discuss how the attacks impacted the economy.
The fact that NYC was slowing down sharply prior to the September 11 attack has implications for
analyzing its economic impact:
<br>· High unemployment means that a negative economic event puts workers into a job market in
which it is harder to get work.
<br>· But high unemployment means it is easier for companies that lose workers or office space to
recruit new workers.
<br>· Higher vacancy rates in Manhattan made it more possible for companies that lost space to find
temporary replacement space in the borough.
<br>· If the economic consequences of the attack for NYC seem high, one explanation may be that
the attack accelerated employment and office-space trends that were already under way.
 
The immediate impact of September 11th was extraordinary.  Al-Qaeda operatives have estimated that the attacks would cost the American economy roughly one trillion dollars.  This is an estimate that is very hard to prove.  Efforts have been taken to estimate the cost.  You must calculate the price of rebuilding or repairing the buildings, the cost of the planes, the cost of income lost by the victims.  You also must add the prices taken from the public and given to the government for protection.  You must add the price of inflation of airline prices because of security.  There are many different aspects that contribute to the price of September 11th. <br:>    First, the World Trade Center and other adjacent buildings were insured for roughly 4 billion dollars.  The Pentagon cost another billion dollars to rebuild.  The four planes cost between $50 million and $100 million each.<br:>      The victims' income was lost to the economy, however it is difficult to calculate the total lost.  Some lives would be worth more, if the victim had been able to continue work for a full lifetime.  The rough estimate for loss of the victims is $5 billion. People who worked in the WTC did not produce goods or services for weeks because the did not have a workspace.  Many of these workers were offering financial services.  The estimate loss of goods and services totaled $10 billion.  The total insurance price for the New York attacks tallied between $25 billion and $30 billion.
<br> September 11th did bring some money back into the economies of New York and Washington.  The effort to clean up the destruction cost the city a tremendous amount, however that money was going back to the people.  In the case for the Pentagon, construction crews were hired to rebuild the damaged area.  
 


[[Image:9-11 scale.jpg]]


'''commodity prices: then and now'''    (http://money.cnn.com/2006/09/08/markets/markets_fiveyearslater/index.htm?postversion=2006090817)
'''commodity prices: then and now'''    (http://money.cnn.com/2006/09/08/markets/markets_fiveyearslater/index.htm?postversion=2006090817)
Line 15: Line 41:


Gold                $271.20      $601.73
Gold                $271.20      $601.73
"Fluctuating prices in the oil, gas and gold markets were factors in trading in 2001, but didn't seem to drive day-to-day market action.
That's certainly changed, with the price of oil, and to a lesser extent, gasoline and gold, often driving stocks on Wall Street. Why? For one thing, all three commodities have skyrocketed since 9/11, amid higher global demand for oil and gasoline, and in the case of gold as a hedge against inflation.
U.S. light crude ended at about $21 a barrel in September 2001 and averaged about $23 that year, according to the government.
This year, oil hit a record closing high of $77.03 a barrel on July 14 and is now at about $66 a barrel. As of the end of August, the average price this year was about $61 a barrel, according to the Department of Energy."  (http://money.cnn.com/2006/09/08/markets/markets_fiveyearslater/index.htm?postversion=2006090817)
(http://hir.harvard.edu/articles/1297/)
___The Saudi-US relationship has consistently been described as an exchange of oil for security. Saudi-US relations held the seeds of its own destruction and was all but destroyed after the crisis of September 11, 2001.
___In the United States, many members of the media, the US Congress, and a number of US think tanks view Saudi Arabia as responsible for September 11, 2001, primarily because of the systematic development of a worldwide jihad against the United States and its values. The problems extend well beyond September 11. Some see Saudi Arabia as using its fabulous oil wealth to maintain a corrupt regime, and through its control of OPEC, blackmailing the United States into overpaying for its oil.
Previously, the Saudis helped the United States by increasing oil production in times of supply stress.After September 11, the Saudis increased production by 500 mbd to help the United States meet its needs at reduced prices.
___The Saudi Oil Minister repeatedly claims to want a stable price of oil between US$22 and US$28 per OPEC barrel (corresponding to about US$26 to US$34 per US-based barrel). The Saudis have provided the United States with the assurance that they will remain the stabilizer of world oil prices.
After September 11, 2001, however, that mutual interest was blown away in both the United States and Saudi Arabia. The old trust, which prospered over a 56 year period, has now disappeared. The business relationship between Saudi Arabia and the United States, nevertheless, remains a substantial asset to the overall relations between the two countries. The United States is still Saudi Arabia’s main source of imports, though diminishingly so.
___The Saudis are still the largest oil exporters and the only state with rapidly accessible reserves. However, since the cultural and political links have been severely damaged, Saudi Arabia’s relationship with the United States is now based on maximizing the financial benefits from oil and minimizing the risk of US intervention in its oil fields. This creates a tenuous balance for the countries to maintain.
(http://www.nmhschool.org/tthornton/mehistorydatabase/afterseptembereleven.php)
___In March, 2002, Russian daily oil production (7.28 million barrels a day) surpassed that of Saudi Arabia.  Relations between the United States and Russia were warming as quickly as they were cooling between the United States and Saudi Arabia. However, Saudi Arabia's vast reserves continued to give it much more flexibility in the marketplace.  Saudi oil, at two dollars per barrel remained the cheapest to produce (New York Times, August 4, 2002)
___The price of oil on April 1 surged on the open market to its highest level in six months ($27/barrel) in the wake of rising tensions in the Middle East and a demand by Iraq that OPEC agree to use oil prices as a tactical weapon to pressure the U.S. and Europe to rein in Israel.
___On April 25, Saudi Arabia's Crown Prince Abdullah met with President Bush in Texas and warned him that there would be "grave consequences" for the United States in the Arab world unless America took a more balanced position in the region (i.e. moderated its support for Israel).  At the same time, he pledged that Saudi Arabia would not use oil as a weapon against the U.S.
___On Nov. 26, the New York Times reported that American dependence on Saudi oil remained heavy, standing at approximately 17%.
Afghan warlord Abdul Rashid Dostum, whose intransigence in the early 1990s was partly to blame for the Taliban coming to power, announced he was pulling out of the new agreement and said further that he would deny any new government access to the oil and gas reserves in the north which he controlled.
(http://money.cnn.com/2001/09/11/markets/oil/)
___Oil prices surged Tuesday in anticipation of an expected U.S. retaliation in the Middle East to terrorist attacks in the United States.
___"There is panic buying of metals, gold and oil -- it is complete pandemonium," said Robin Bhar, metals analyst at Standard Bank London. "Gold and oil have gone up and it is a drive towards safe-haven territory."
(http://www.rinf.com/columnists/news/us-oil-and-defense-industry-chiefs-cash-in)
(http://www.businessweek.com/bwdaily/dnflash/oct2001/nf20011030_2363.htm)
___Since the U.S. began its war on terrorism in the aftermath of the September 11 attacks, oil markets have been jittery about the possibility of a supply disruption -- with good reason. The U.S. imports 51.6% of its oil needs, and half of that from OPEC. With Saudi Arabia and other Mideast oil-producing nations facing potential destabilization because of U.S. bombing in Afghanistan, the chance of interrupted oil supplies is greater than it has been since Iraq's invasion of Kuwait.
___The events of September 11 in themselves didn't threaten oil supplies, but the market immediately factored in a new nervousness. That didn't last very long, and the price came down again within a week. Clearly, there is a new threat.
___Nobody thinks the very careful [U.S. military] action that's being taken at the moment poses any specific threat to oil supply.
___We were in that middle ground in the few days after September 11, where the market was clearly expressing alarm, reflected in price. But it proved to be short-lived, and didn't reflect an actual physical threat [to supply].
(http://www.econedlink.org/lessons/index.cfm?lesson=EM259)
___Following the September 11, 2001 attacks on the United States, demand for fuel dropped significantly, causing a decrease in the price of oil and oil-related products. OPEC's decision to cut production of oil is intended to help stop that decrease in price by decreasing the supply.
(http://usinfo.state.gov/journals/itgic/0902/ijge/gj02.htm) ONE YEAR LATER
___Now the second largest producer of oil in the world, Russia has become a major player in energy markets, helping bolster a recovery by holding down world oil prices.
(http://www.opec.org/home/)
OPEC’s mission is to coordinate & unify the petroleum policies of Member Countries & ensure the stabilization of oil markets in order to secure an efficient, economic & regular supply of petroleum to consumers, a steady income to producers & a fair return on capital to those investing in the petroleum industry.
(http://en.wikipedia.org/wiki/OPEC)
Note that although the official language of a 7-nation majority of OPEC member-states is Arabic, OPEC's official language is English. Only one member nation (Nigeria) has English as an official language.
___Africa
    Angola (January 1, 2007)
    Libya (December 1962)
    Nigeria (July 1971)
    Algeria (1969)
Middle East
    Iran (September 1960)
    Iraq (September 1960) (Excluded from OPEC production quotas since 1998)
    Kuwait (September, 1960)
    Qatar (December 1961)
    Saudi Arabia (September 1960)
    United Arab Emirates (November 1967)
South America
    Venezuela (September 1960)
Southeast Asia
    Indonesia (December 1962; membership under review as Indonesia is no longer considered a net oil exporter by OPEC)
Former Members
    Gabon (full member from 1975 to 1995)
    Ecuador (full member from 1963 to 1993), expressed interest in rejoining (November 2006) [1]
Prospective Members
    Bolivia, Mexico, Sudan and Syria have been invited by OPEC to join.[5]
    Sudan and Ecuador are currently seeking membership.[6]
___the September 11, 2001 attacks against the United States and the subsequent invasions of Afghanistan and 2003 invasion of Iraq and subsequent occupation prompted a surge in oil prices to levels far higher than those targeted by OPEC during the preceding period.
LEXIXNEXIS conflicts and taxes behind...
RISES in the wholesale cost of oil have been the chief reason for its increasing price over the past three years

Latest revision as of 17:13, 28 November 2007

Economics in the US Before 9/11

We will discuss the economic situation of the United States leading up the the attacks on September 11th.
Soon after the attacks on 9/11, economists from the National Bureau for Economic Research announced that the country was in a recession and had been since March, 2001



In interpreting the private-sector economic impact of an event, the circumstances of the economy immediately prior to the event must be taken into account. The NYC economy out-performed the nation in the first quarter of 2001, with jobs rising and unemployment falling and inflation lower than the national average. This changed in the second quarter, with four of five economic indicators deteriorating. The equity value of NYC-based dot-coms, which was closely negatively related to the demand by dot-coms for office space, in second-quarter 2001 was one-third the value of a year earlier and one-seventh the value of two years earlier. Manhattan commercial officevacancy rates in second-quarter 2001 were nearly twice the level of a year earlier. Then, in August, NYC private-sector jobs fell by a seasonally adjusted 8,200 jobs, the steepest decline in more than five years (total jobs fell by 10,300). The securities industry shed 1,600 jobs. Unemployment rose sharply to 5.8 percent from 5 percent in July.1

Economics in the US After 9/11

The fact that NYC was slowing down sharply prior to the September 11 attack has implications for analyzing its economic impact:
· High unemployment means that a negative economic event puts workers into a job market in which it is harder to get work.
· But high unemployment means it is easier for companies that lose workers or office space to recruit new workers.
· Higher vacancy rates in Manhattan made it more possible for companies that lost space to find temporary replacement space in the borough.
· If the economic consequences of the attack for NYC seem high, one explanation may be that the attack accelerated employment and office-space trends that were already under way.

The immediate impact of September 11th was extraordinary. Al-Qaeda operatives have estimated that the attacks would cost the American economy roughly one trillion dollars. This is an estimate that is very hard to prove. Efforts have been taken to estimate the cost. You must calculate the price of rebuilding or repairing the buildings, the cost of the planes, the cost of income lost by the victims. You also must add the prices taken from the public and given to the government for protection. You must add the price of inflation of airline prices because of security. There are many different aspects that contribute to the price of September 11th. <br:> First, the World Trade Center and other adjacent buildings were insured for roughly 4 billion dollars. The Pentagon cost another billion dollars to rebuild. The four planes cost between $50 million and $100 million each.<br:> The victims' income was lost to the economy, however it is difficult to calculate the total lost. Some lives would be worth more, if the victim had been able to continue work for a full lifetime. The rough estimate for loss of the victims is $5 billion. People who worked in the WTC did not produce goods or services for weeks because the did not have a workspace. Many of these workers were offering financial services. The estimate loss of goods and services totaled $10 billion. The total insurance price for the New York attacks tallied between $25 billion and $30 billion.
September 11th did bring some money back into the economies of New York and Washington. The effort to clean up the destruction cost the city a tremendous amount, however that money was going back to the people. In the case for the Pentagon, construction crews were hired to rebuild the damaged area.


commodity prices: then and now (http://money.cnn.com/2006/09/08/markets/markets_fiveyearslater/index.htm?postversion=2006090817) Average Price for 2001 2006

Crude Oil $23.00 $60.98

Gasoline $1.66 $3.03

Gold $271.20 $601.73

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