Research on Oil Price

College of Technology London

153-159 Bow Road, London E3 2SE, United Kingdom

Research proposal on:

The surging oil price and its contribution to inflation in the United Kingdom:

an in depth study

Course: MEP/MBA

Module Name: Business Research Methods (MEP1)

Submitted to:

DR. AUDSIN M. DHAS

25th July 2008

Prepared By: Deven Gurnani Student Id : 083502-77

Research Proposal

1.Proposed Title

“The Surging Oil Price and its contribution to inflation in the United Kingdom: an in depth study”.

2.Research Background / Context

The purpose of this study is to understand the effects of inflation in the United Kingdom caused by the massive increase in the oil prices. The Prime Minister of Britain Gordon Brown described this as the most worrying situation in the world faced today.

Guardian Newspapers Limited 17 June 2008 [Online] URL

http://www3.u.tv/BusinessNews/index.asp?iNewsID=114821&dtmDate=17/06/2008 [Accessed 12 July 2008]

It is noticed that as and when the Inflation rises the purchasing power goes down due to rise in the commodity prices.

As a fact there are various types of inflation. It is believed that every country is affected by and falls under one of these categories during recession, part of my research will also try to gain an insight and study as to which category does UK falls into, as its impact is being felt on the Airlines, Banks Supermarkets. There is an Increase in the Unemployment and massive job cuts. Hike in the oil prices has led to bankruptcy of many airlines as they are Airlines are forced to increase the Airfares.

The current statistics states that the oil prices have doubled over the past year almost by 5 per cent in May and June. The report indicates that the unleaded petrol is currently costing around £1.20 a litre and £1.30 for diesel in the UK as compared to US where a barrel ranges between $140 and $150, this has alarmed the Organization of Petroleum Exporting Countries (OPEC) which is an organization consisting of 13 countries which ensures the stabilization of prices in international oil markets with a view to eliminating dangerous and unnecessary fluctuations.

http://www.opec.org/library/what%20is%20OPEC/whatisOPEC.pdf

[online][Accessed on 13/07/08]

“Bank of England governor Mervyn King has already warned that record oil prices, reaching nearly Dollars $150 per barrel, are likely to push inflation above 4 per cent.”

Islamic Republic News Agency, July 2008, (Inflation continues to rise in the UK),

[Online] http://www2.irna.com/en/news/view/menu239/0807151087192855.htm,

[Accessed on 16/07/08]

“Oil prices have roughly doubled in the last year, putting pressure on airlines which have seen their fuel costs soar”

Business Spectator , 28 May 2008 [Online] URL http://www.businessspectator.com.au/bs.nsf/Article/UPDATE-2-Oil-price-bites-Airbus-braces-for-cancell-F3G63?OpenDocument [Accessed on 13/07/08] )

British Airways is also trying to cut fuel bill by making planes as light as possible. It will carry less water and oxygen cylinders to reduce weight – to the minimum prescribed by the civil aviation authority.

Aerospace, 03 June 2008 [online] URL

http://www.domain-b.com/aero/airlines/20080603_british_airways.html [Accessed on 17/07/08]

3.Rational for choosing the topic.

Being a overseas student in the UK, I have personally felt the pressure just like any common man in the UK, be it shopping in a supermarket, travelling (Air / Train) or paying the rent this has influenced me to research on this unstable economic situation caused by the sharp rise in the price of oil and would like to analyse and explore as to what are the other factors leading to inflation. This is a threat to the UK economy which needs an immediate attention.

4.Research Objectives/Questions

The following is the summary of the main objectives of my research proposal:

1. To identify the effect of inflation in the UK Economy.

2. To find the reason behind no alternative for petroleum fuel.

3. To get an insight as to how the Dollar weakening affects the increasing oil price.

The ultimate objective of this research is to identify the possible factors leading to inflation and its impact on the UK Economy caused by the sharp increase in the oil prices.

Inflation is not country specific, it is a global issue, even in my hometown India which is still a developing country, inflation has struck and has tripled in the last 6 months and its impact on the economy is critical, comparing India with the UK, one can easily predict the effects of inflation as UK is one of the well developed country.

This research will also take into consideration some of major factors which has directly or indirectly affected the economy due to hike in the oil price as now the overall economy ending into recession is at a higher risk. Research will also try to focus on as to how a common man is adversely affected by the inflation.

  • In this research I would like to find why there is no alternative for such an essential element in today’s world?
  • The UK until the year 2005 was one of the main producers of Oil. What lead the UK to stop its production & only become importers?

5. Literature Review

Inflation caused by the increase in oil price is certainly an economic condition, in simple terms it is an general increase in prices and wages, the purchasing power decreases as the things are more expensive resulting in less savings as a common man is restricted to live on his saved reserves affecting his long term savings. Organizations face an increasing threat and are forced to reduce their costs due to increasing competition which ultimately affects the employees as the salaries are reduced and also job cuts increasing unemployment.

“Sir Stuart Rose, the executive chairman of Marks & Spencer, has said that high petrol prices are deterring customers from driving to out-of-town retail parks.”

Marks & Spencer boss says oil price is hitting out-of-town retail,

(By James Hall, 13/06/2008),

(http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/13/cnmns113.xml)[online] [Accessed on 19/07/08]

Due to the hike in the oil price people prefer the local high street shops rather than the branded retail shops such as M & S, to purchase commodities as the same goods are available at a cheaper rate locally. I can boost this point with a good example that the branded retail shop M&S have observed fluctuations in shopping habits since last 6 months probably. I agree with this statement which was given by Sir Stuart Rose, the executive chairman of Marks & Spencer.

“High prices of petrol and diesel are making UK drivers think twice about travelling by car,

a survey suggests”

BBC News, 19 May 2008, (Fuel prices 'keep cars off road)

[Online] http://news.bbc.co.uk/1/hi/business/7409166.stm [Accessed on 10/07/08]

Petroleum fuel which is a by-product formed after processing the Crude Oil, this fuel is used in Transportation (Airplanes, Cars, buses Ships etc). Hike in the price of Petrol and Diesel has directly affected the travellers in the UK, Motorists are forced to take alternate means of transport, this has definitely put lot of pressure on the Public Transports like Buses and Tubes.

“British Airways is considering plans to ground some of its flights in an attempt to deal with the soaring cost of fuel. BA will now examine flights on a ''route by route basis", Willie Walsh, the airline's chief executive, said. BA, which lost £3 billion due to the oil surge”

domain-b.com Aviation and Aerospace [Online]

http://www.domain-b.com/aero/airlines/20080603_british_airways.html [Accessed on 17/07/08]

Airfares have hiked as a result of steep rise in the oil price, this has led to bankruptcy of many airline companies. Major Airlines such as British Airways and Virgin Atlantic have survived the surge in the oil cost as a fact they have hedged a percentage on the jet fuel, hedging helps buy the jet fuel at a fixed rate in the future and thus sustaining air fares.

Willie Walsh the chief executive of the major airlines British Airways also plans to cut down on capacity, drop on unprofitable routes and discontinue its oldest models as they consume more jet fuel and are inefficient.

British airliner Silverjet is an classic example of being a victim of the surging oil price being forced to discontinue its services.

6.Methodology

Initially for my research I would prefer Exploratory Methodology as will be based on observations, looking at the variables and its relationships thus gaining an insight on the subject of the research. Later on Conclusive research would also be possible after performing Exploratory research.

7. Data Collection/Data Analysis Methods

The Data Collection for this research will be secondary and there is a possibility of primary Data Collection

Secondary methods of data collection can supply quantitative data ie (numbers, statistics), Updated Information from Internet books, journals, magazines will be taken into consideration.

8. Time Scale:

Activity

July 2008

August 2008

Week commencing

3

5

8

11

14

22

25

26

31

3

7

12

15

18

20

22

Selection of Topic

X

Read Literature

X

X

X

Finalise objectives

X

X

Proposal

X

Feedback on proposal

X

Develop interview questions

X

X

X

Participant Observation

X

X

X

Gather Data

X

X

X

X

Analyse Data

X

X

X

X

Update Literature read

X

X

X

Draft to Supervisor

for feedback

X

Revise draft

X

Print and bind

X

Submission

X

9.References

Guardian Newspapers Limited 17 June 2008 [Online] URL

http://www3.u.tv/BusinessNews/index.asp?iNewsID=114821&dtmDate=17/06/2008 [Accessed 12 July 2008]

http://www.opec.org/library/what%20is%20OPEC/whatisOPEC.pdf

[online][Accessed on 13/07/08]

Islamic Republic News Agency, July 2008, (Inflation continues to rise in the UK),

[Online] http://www2.irna.com/en/news/view/menu239/0807151087192855.htm,

[Accessed on 16/07/08]

Business Spectator , 28 May 2008 [Online] URL http://www.businessspectator.com.au/bs.nsf/Article/UPDATE-2-Oil-price-bites-Airbus-braces-for-cancell-F3G63?OpenDocument [Accessed on 13/07/08] )

Aerospace, 03 June 2008 [online] URL

http://www.domain-b.com/aero/airlines/20080603_british_airways.html [Accessed on 17/07/08]

Marks & Spencer boss says oil price is hitting out-of-town retail,

(By James Hall, 13/06/2008),

(http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/13/cnmns113.xml)[online] [Accessed on 19/07/08]

Energy Bulletin Peak Oil Review - June 23

http://www.energybulletin.net/node/45479 [Accessed on 15/07/08]

BBC News 25 April 2008http://news.bbc.co.uk/1/hi/scotland/7360339.stm

[Accessed on 13/07/08]

http://www.telegraph.co.uk Accessed on July 10, 08

http://news.bbc.co.uk/1/hi/business/7409166.stm Accessed on July 10, 08

Source: Essay UK - http://turkiyegoz.com/free-essays/economics/research-on-oil-price.php


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