Production in a New Age: The Cost at Home for Doing Work Abroad

With crude oil futures closing at $88.41 per barrel Feb. 5, "recessionary concerns" for the U.S. have created possible cause for alarm regarding energy demand, according to Market Watch.

"It depends on whether households, firms (including oil producers), and economic policy makers anticipate an economic contraction and what actions households, firms and policy makers take in response to this concern," said an economist from Energy information Administration (AEI).

Compared to this time last year, crude futures have risen some $10, though the roller-coaster ride continues. Big discoveries in distant lands have only fueled the drive to do work in remote parts of the world, an impetus driven also by lower-cost production.

The EIA said in a Feb. 6 report that "as oil prices have risen, firms have chosen to move production abroad to areas where the costs of other factors of production (primarily wages) are lower to offset the increase in the price of energy so that they could remain competitive in their delivery of goods and services."

Production fears in Nigeria, based on the restructuring of the country's energy sector and the insistence of Nigeria's president on the employment of Nigerians in positions that have been held by expatriates, and the reluctance of OPEC to increase production levels have kept crude prices relatively high.

However, instead of sinking into a recession during 2007, which would curb radical consumption levels and in turn effect production levels, the economy actually stabilized from fourth quarter 2006 to fourth quarter 2007.

The EIA report explains that "The combination of firms and policy makers anticipating an economic slowdown or contraction, policy makers taking aggressive action to offset the signs of economic weakness, and OPECís cut in crude oil production in order to keep crude oil markets tight, resulted in a sharp rise in crude oil prices during the second half of 2007."

Yet recession fears have not yet faded away, nor have they had any less of an impact on the price of oil. reported Feb. 6 that oil prices, down to $87 per barrel, fell again "after the government said supplies of crude rose more than expected last week and on worries about a looming economic recession."

EIA reported that crude stocks rose 7 million barrels last week. The estimate analysts had hoped for was 2.6 million barrels. This sharp increase has also allowed crude to fall in price.

The 148th Meeting of the OPEC Conference takes place March 5, 2008. In early January, OPEC President Chakib Khelil said that the high price of oil will last until the end of the first quarter, which coincides with the next possible meeting and the next possible increase in production. Khelil said it is "probable" that prices will stabilize during the second quarter of 2008.

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