CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

One factor in the global economy that has continued to pose a big challenge to policy makers across countries is the increasing spate of fluctuations in the price of oil and exchange rate. The world price of crude oil, which was stable between $2.50 and $3 since 1948, quadrupled from $3 per barrel in 1972 to $12 per barrel by the end of 1974, and from $14 per barrel in 1978 to $35 per barrel in 1981. The price of oil, however plummeted below $10 per barrel in 1986, but surged again to between US$18 and $23 in 1990s. It crossed the US$40 mark in 2004; and rose to about US$60 from 2005. During the summer of 2007, the price of one barrel of crude oil jumped above US$70 and even crossed the US$145 mark in July 2008. The price staggered to US$80.50 in October 2009 and remained at an average of US$75 till August 201,NYMEX (2010).

CRUDE OIL PRICE HISTORY FROM 1970 TO 2010

1970

- $2.10

1979

- $14.80

1987

- $17.13

1995 - $16.15

2004 - $31.16

1971

- $2.65

1980

- $29.97

1988

- $19.92

1996 - $19.70

2005 - $29.97

1972

- $2.80

1981

- $40.00

1989

- $15.05

1997 - $24.65

2006 - $38.21

1973

- $3.10

1982

- $36.50

1990

- $21.20

1998 - $16.50

2007 - $56.97

1974

- $12.60

1983

- $35.50

1991

- $27.8

1999 - $10.60

2008 - $63.28

1975

- $11.80

1984

- $30.00

1992

- $18.20

2000 - $25.55

2009 - $98.52

1976

- $12.84

1985

- 28.00

1993

- $18.50

2001 - $22.00

2010 - $39.85

1977

- $14.33

1986

- $28.65

1994

- $13.50

2003 - $19.88

2011 - $77.69