Examine the Factors That Determine the Price of Oil in the Market. How and to What Extent Could Government Policies Affect Oil Prices?

1. Introduction The price of oil becomes the bone of contention recently. Oil price seems to be hitting new highs with the regularity of a metronome. It is a bad news for customers who have to pay more on it. More frightening still, this situation may get worse before it come back to normal. No one can exactly predict when the pendulum will soon swing back again since all uncertain factors existing. From the supply side of view, the OPEC is the main producer, being prepared to add or subtract production…

How Oil Prices Affect the Price of Food By Post Carbon | Wed, 21 December 2011 18:07 The current global food system is highly fuel- and transport-dependent. Fuels will almost certainly become less affordable in the near and medium term, making the current, highly fuel-dependent agricultural production system less secure and food less affordable. It is therefore necessary to promote food self-sufficiency and reduce the need for fuel inputs to the food system at all levels. The connection between…

Fluctuating price of oil and how it affect the global economy Abstract: The oil prices have started rising significantly since the initiation of the twenty first century. Theoretically, one can judge the impact of an oil price shock. The immediate effect of the oil price shock is the increased cost of production due to increased fuel cost. This creates an inflationary effect (mainly cost push inflation which is accompanied by a situation of unemployment). Whenever there is an overall inflation…

How Are Oil Prices Fabricated? The history of the oil industry started off smooth and inexpensive, but as years went on, more and more uses came of the commodity which drove its value up significantly. There is a lot of money to be made in the oil industry, likewise, there is a lot of money to be lost. The formula to make money in this industry is not so much controlled by the supply and demand of the product as much as it is the cost of extracting and refining the raw material. Configuring the…

In economics the market relations between the suppliers and consumers of a product are known as demand and supply. From a demand –supply model we can easily determine the price and quantity sold in a market of a particular good like personal computer. In recent market, the affordability of computer plays an important role in high demand of it and to fulfil the required demand suppliers/ producers supply more and more computer in market. There are a number of factors which affect the demand and supply…

It is often said that oil price shocks affect business cycles, triggering a detrimental effect on the economic activity of some countries when they rise and a favourable effect when they fall. One instance could be the U.S., where the data suggests that most recessions after 1973 have been headed by oil price increases, which is often taken as evidence of recessions being caused by oil price shocks. This brings up to question through which channels oil price shocks might be transmitted to economic…

theorised in 1931 that since oil is an exhaustible resource that once burnt cannot be reused, the price of oil should exceed the marginal cost even in a perfectly competitive market. This is a result of unavoidable geographical limits, if we assume the short-run demand price elasticity of -0.10 and we know that next year oil production will be 90%, this means that the price will be double what it is today. In this example it would make sense for the producer to ‘store’ the oil in the ground waiting to…

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. There is a growing body of evidence to suggest that the days of oil commodity prices being driven purely by forces of supply and demand are over. Figure 0 Since the early 2000s, the sharp increase in oil price volatility has coincided with a more apparent link…

How Oil Prices are Established Did you realize that at our current consumption of crude oil and at our current status of known reserves, we have approximately 40 years of reserves remaining? This is a startling fact when we take into account all the products that are produced from refined crude oil or from its by-products. Many people are aware of the price increases they feel at the gas pump, but has anyone ever considered the cost or investment put forth in finding new reserves? Under the right…

Discuss how rising oil prices might affect the macroeconomic performance of an economy. (25 marks) There are four main macroeconomic objectives of the government it wishes to achieve in order to maximise the welfare of the society, they are: low and stable inflation, a favourable current account position on the balance of payments, low unemployment and sustained economic growth. One macroeconomic objective that might be affected by rising oil prices is the current account of the balance of payments…