The oil price and the economic growth

Yesterday I pointed out during an economic boom the oil price would be highly likely to be relatively higher than when it is an ordinary time period. However, how much can we use the oil price as an indicator of the outputs of our economy?

It is reasonable because crude oil is many products' important raw materials and fuel most motor engines, crude oil could partially represent the general production of the world economy, when the amount of the global outputs is large, the demand for crude oil is definitely high, and vice versa. From this side, the increase in the world demand will lead to an increase in the demand for crude oil, thus increasing the oil price. However, oppositely the supply side of crude oil could also impact on the oil price.

As the market for crude oil is an oligopoly market, the OPEC has significant power to impact the oil price; therefore, the oil price is partially controlled by the supply side. When the supply side has some control over the market oil, the oil price does not fully reflect the actual changes of market supply and demand. Therefore, when the OPEC does not have any actions in the oil market, the oil price could reflect the market demand for crude oil, and the global outputs.

However, sometimes the OPEC's action is not obvious and is hard to be seen. When this is the case, we can use the economic growth in these OPEC countries, when there is a significant change in the economic growth rates in these countries comparing with the global economic growth rate, we could say that the possibilitiy of taking actions in the oil market to impact the price change is high, so the credibility of using the oil price to reflect the world economic growth.