Brent Crude Oil Essay

Over the past few years oil prices have been dropping. According to the U.S. Energy Information Administration (eig.gov), a barrel of oil cost $86.07 on October 20, 2013. As of October 20, 2015 a barrel of oil

Oil is the product that each and every one of us use. It can be used for fuel, heating and even cooking. The most often known for unstable price is crude oil or gasoline. According to the The Economist, The main reason for price shifts of oil is oversupply. The oil production in Saudi rose 10.3 million barrels per day. This increase is the effect of a new method that I being applied to oil extraction. This method is called fracking, fracking is where they drill into tight-rock formations then gradually turning horizontal for several thousand feet more. This results to accommodations to multiple oil wells. This new approved method of oil harvesting has raised the productivity gains and reduced the cost of harvesting oil.

High oil price for last few years drove the energy industry to come up with a new technological innovation and the result is a new drilling technique like hydraulic fracturing. This new technology made drilling easy in North Dakota and Texas (Timiraos, 2014). With more oil drilled domestically, U.S became net energy exporter instead of an importer. Also falling demand due to energy conservation, more efficient cars, less demand in China and OPEC opted against cutting production levels made the price go down. When Global economic growth was slowing and most economists agree that both supply and demand played role in the last year oil price plunge. Driven by the increased supply, oil price dropped from $82 to $50 between Oct'14 and Jan'15. The IMF summarizes 58% of the drop in oil price to supply and only 42% to demand.

The United States consumes more than 25% of the world’s petroleum products which is a large percentage, considering only 3% of the world’s oil reserves are produced by the United States. Given the demand for petroleum products such as gasoline, understanding why Crude oil prices have skyrocketed in recent years, is not hard. According to the article “Ending America’s Oil Addiction,” the surge in crude oil prices can be reduced in large part to the simple concepts of supply and demand. (Cooper, 2008)

The U.S. was supposed to be the world’s new swing oil producer, able to nimbly open and close the taps in response to market forces, thanks to its bounty of shale fields.” In the past a barrel of oil has been one hundred dollars, recently it has dropped to thirty dollars. Though some wells can be profitable at low prices it puts a serious strain on the oil industry as explained in this article.

In the early stages when WTI oil was first becoming useful the price was at an all time low of just $15.01 US per barrel back in January 1946. The price of oil had its first major spike in January 1974 when the price jumped from $22.44 US to $50.30 US per barrel, which was an impactful price change as money was not in high quantities. When the price climbed and reached $114.51 US per barrel in April 1980 the demand for oil dropped as people did not have to the money to afford petroleum, which caused a downfall in price to $27.23 US per barrel.

Within the last year, oil prices in the United States have dropped significantly. As oil drilling in the United States has reached its highest level in over 30 years, consumers are reaping the benefits. Among these gains are record-low prices at the pump, and cheaper oil to heat homes. However, oil prices did not just drop on their own; multiple factors contributed to the fall. Increased domestic production, declining global demand, and competition from other oil-producing nations had led to rapidly dropping oil prices across the United States.

From 2014, the crude oil price has dropped in a sudden since the global economic downturn, oversupply of crude oil and the appearance of new energy. Global economy fatigued, and thus the demand of crude oil was not strong,

* Stable oil price has created a stable business environment. Brent oil now trade at 85 US Dollars with an increase or decrease of 0.5 approximately a day. This steady price will help Pret A Manger in forecasting top management decisions as long as other factors remain constant.

Unlike Brent, North American crude production is up amid a "shale oil revolution." To capture this fact, we use two variables published by the EIA. The first, CANADA, is the weekly amount of Canadian crude imported into the Petroleum Administration for Defense's Midwestern District ("PADD 2") where Cushing is located. The second, RIGS, is a monthly count of rotary rigs operating onand off-shore in the 50 United States. Both series increase steadily over most of our sample period, accelerating sharply from 2009 (RIGS) or 2011 (CANADA). Both variables should be inversely related to the spread: ceteris paribus, more North American supply should push down WTI's price—especially if the oil faces difficulties reaching international markets.

From different varieties and grades of crude oil, benchmarks are often used to set the prices. West Texas Intermediate (WTI) and Brent are two crude benchmarks that Canadian refiners often encounter. Brent is the leading global benchmark for crude oil prices because of its ability to ship to practically any oil receiving marine terminal in the world (Statistics Canada, 2013). Any geopolitical events that can possibly affect the supply and demand for crude oil will influence the price. As a result, crude oil prices in Canada are affected by foreign and domestic issues. For example, in 2005, Hurricane Katrina blocked oil production around the Southern Gulf Coast of the United States. As the supply decreased and the demand remained the same, oil prices over a barrel increased in a short period of time. President Bush sent thirty million barrels from the Strategic Petroleum Reserve (SPR) to bring the oil price down (Oil Price, 2009). Political problems in the Middle East have also caused many worries over the access of oil supply this region produces. In 2008, oil prices went over one hundred and thirty six dollars a barrel due to global concerns of the wars happening in Iraq and Afghanistan (Oil Price, 2009). The oil prices increased because buyers were afraid the oil was unable to be properly delivered. As these oil prices rise, consumers cut back on driving to save money. This decreased demand, which also decreased the

From 2010 until mid-2014, world oil prices was fairly stable and their costs was oscillating at around $110 per barrel. The situation changed rapidly in June 2014 when prices have more than halved. At the moment, Brent crude oil has now fell below $50 a barrel for the first time since May 2009 and US crude is down to below $48 a barrel.

The scarcity of oil offering but, together with the increased global demand, certainly play their part to the recent price increases on world markets. Only recently climbed the price of a barrel of crude oil to over 100 U.S. dollars, an increase to 120 dollars per barrel no longer seems excluded. The price of oil to the U.S. gas stations since 2004 is even more than double.

In recent years, the fluctuations of oil prices have gotten the attention of the whole world. From $20s in 2003, it hit a mid-term peak of $148 in mid 2008, then fell to $30 during early 2009, and now back to $70-$80. Economic principles have demonstrated that the rise of oil price is a function of lack of supply and greater demand. We know that oil is lack of supply since there’s no major oil field found in the last 40 years and oil can’t be made within decades. However, the following conundrum has not been resolved: What are the key demand side drivers of price for oil? The price of oil depends on a variety of factors which leads to the increase of price. In summary,

Over the past decade, there have been numerous periods of high volatility in oil prices. In July 2014 oil was priced on the North Sea Brent at over $111/barrel, followed by the most recent oil price crash which lowered the Brent in early 2016 to under $30/barrel.