Economics Assignment : Lachlan Milligan

In 2016, the crude oil price movement prices were unpredictable. The OPEC reference basket dropped 10 percent to $43.22 per pound. The ICE Brent and NYMEX WTI both went down by 8.4 percent with ICE Brent at $47.08 per pound and NYMEX WTI at $45.76 per pound. This showed that there were uncertainties in the petroleum market. The future prices were predicted for 2017 that it would move higher. The World’s economic growth predictions was the same at 2.9% for 2016 but increased to 3.1% for 2017. Because of the 3rd quarter of 2016 in Japan and US, the OCED growth went from 1.6% to 1.7%. The demand for oil growth in 2016 has been increasing slightly to 1.24 mb/d. In 2017, the demand will be predicted with a decrease to 1.15 mb/d. OECD will

The consensus from the 1970s and 1980s was that there was an inverse relationship between oil prices and real economic activities. This belief later changed when the oil price crash of the mid-1980s failed to boost economic growth. Researchers then believed that increasing oil prices negatively affect the economy whereas falling oil prices have very little impact and by the 1990s this impact was assumed to be minimal (DePratto, de Resende and Maier 2009). More recently, researchers have found that increases in the oil prices adversely affect the economy whereas the impact of a decline in oil prices on GDP growth is only negligible (Jimenez-Rodriguez and Sanchez

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.

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,

One thing that is very important. The second graph is just a prediction. We can only use the first one to explain why the oil price rise up.

The United States is the largest consumer of gasoline in the world. Not only do we use more than any other country in the world, but our usage is almost twice as much as the second largest consumer in the world. We need gasoline to power our cars, boats, and the modes of transportation we use to transport the goods we produce from one place to another. But what determines the price we pay for this precious commodity? Gasoline is produced from the refining of crude oil. We import and produce oil by the barrel. One barrel of unrefined oil produces approximately 19 gallons of gasoline. The crude oil we import is a commodity, and the world market is what determines the price of these barrels of oil, along with demand. The world demand can be controlled in a couple different ways. First, The Organization of the Petroleum Exporting Countries (OPEC), which is an oil cartel whose members are some of the largest oil producing countries in the world, control the amount of oil that is put into the world market. By controlling the amount available they can control the demand from countries that mainly rely on this import. The

Anybody from Texas who drives a truck has felt glad about paying less money in regards to purchasing gasoline at a gas station. The truth is that the price of gasoline has been dramatically affected by the recent plunge in oil prices. There are different theories that explain the reason of this phenomenon. This paper will analyze the current oil market, as well as the key players who are winning the “war” of the oil prices.

As most of the world knows oil prices have been plunging downwards since June 2014, in which a barrel of oil has fallen more than 70 percent from that time, was $90- $100 a barrel, now $40 a barrel and approaching $30 a barrel. This fall basically came about due to rapid increase in global oil production which started to exceed its global demand therefore forcing prices down. “Earnings are down for companies that made record profits in recent years, leading them to decommission more than two-thirds of their rigs and sharply cut investment in exploration and production. Scores of companies have gone bankrupt and an estimated 250,000 oil workers have lost their jobs.” (Krauss, 2016).

Graph 1 represents the market supply of crude oil, segmented by Organisation of Petroleum Exporting Countries (OPEC), Non-OPEC and US oil suppliers. It also represents how the oil price have fluctuated from 2004 until 2014. In 2014 we are able to see declining oil prices due to various factors related towards the supply and demand of crude oil which will be explored below.

Since summer 2014, the price of oil in the global market has drastically fallen. As measure by the U.S dollar, oil price has declined by around 50 percent from last year. The declining oil price is widely deemed as the effects of the increasing oil supply and decreasing demand in the global market among other factors. Future pricing predictions indicate that the price of oil will hardly be restored the level it was in recent years. The focus of this paper is to describe how the basic supply and demand mechanism has contributed to the decline in global oil prices and the subsequent effects of the prices on various national economies.

This paper explorers a few of the possibilities of the reasons behind the increase and/or decrease in the price of oil, and the effects these prices have on the economy. It introduces some key players in the oil business itself and helps to break down the logic of how oil is the singular contributor of revenue to many economies worldwide. This research examines, through many resources, the different roles that the U.S. and foreign governments play in determining the price of oil, whether from an import or export standpoint. Also, many articles show how the stock market

Internationally, the supply of crude oil has been elevated beyond demand leading to a subsequent decrease in prices for the past few years. The price reduction of oil remained consistent and very low until a few months ago when the oil market underwent scrutiny for its high level of output. Since then, the price of oil has been extremely turbulent; experiencing record highs for the year, but following with plummeting values the very next day. Many factors, internal and external to the United States, account for the change in supply and demand of oil internationally and these factors will subsequently cause the price of oil to decrease to 48 dollars from 50.

There are various empirical literatures, investigating the relationship between oil price variations and economic growth. The existence of a negative relationship between macro-economic activities and oil prices has become widely accepted especially after Hamilton’s 1983 work. He pointed out that increase in oil prices, reduced US output growth from 1948 to 1980. Hamilton's findings have been confirmed and extended by many authors and researcher. Hooker (1996) confirmed and extended Hamilton’s work for the period 1948 to 1972 and demonstrated that the oil price level and its changes do reflect the influence on GDP growth. This is shown in the third and fourth quarters after the shock that rise of 10% in oil prices lead to a GDP growth decrease of approximately 0.6 %. Accordingly, Lee et al. (1995) Mork (1989), and Hamilton (1996) presented the non-linear transformations of oil prices to re-establish the negative association between oil prices increases and economic decline, as well as these researchers also analyzed Granger causality between both variables. The result of Granger causality test proved that oil prices Granger cause U.S. economy before 1973 but no

The year 2014 witnessed a dramatic decrease in the world market price of crude oil. Beginning in June 2014, the price per barrel (pb) steadily declined from $115pb to below $50pb at the start of 2015 (Bowler, 2015; US EIA, 2015; Voigt, Walls, McKemey, Bakogiannis, Williams, Morley, Warga, & Bronstein, 2015). Fluctuations in oil prices can considerably affect various aspects of both the world and individual country economies (Basnet, Vatsa, & Sharma, 2014).

The global oil prices have fallen sharply since the second half of 2014, which has led to a series of economic problems. Oil prices have been stable from 2010 until mid-2014, remaining at around $110 a barrel (BBC News). However, prices showed a sharp decline since June 2014 and have been more than halved now (BBC News). Brent Crude oil is priced below $50 a barrel and US crude is dipped down to below $48 a barrel now (BBC News). Oil prices shock is making the whole oil industry straggling. In particular, oil producing and exporting nations including Russia, OPEC (especially Venezuela and Saudi Arabia), and United States are the major victims in the oil prices shock. They are suffering from a fallback in their economy development due to the significant revenue shortfalls. Russia is suffering from a significant economy recession (BBC News). Brad Plumer points out that economy in Russia is “facing a potential meltdown”; Venezuela is “facing unrest” and “may default on its debt”; and Saudi Arabia will face heavy pressure if the price remains low even it has prepared for the shock (par. 7). Nonetheless, low oil prices are welcomed by oil importers like Europe, Asian countries, especially China, Japan, and India because they can pay less for oil. Europe’s flagging economies are characterized by low inflation and slow growth, receiving 0.1% increase in economic output when a 10% fall happened to oil prices (BBC News). China, the largest net importer of oil is surely benefiting