An Economic Analysis of the Current Oil Market & Prices PREPARED BY: Teoh Chern Shi ID NO: B0075JMJM1112 ------------------------------------------------- ------------------------------------------------- SEMESTER: Semester one LECTURER: Ellie Semsar DATE: 20th February 2012 ------------------------------------------------- * * Table of Contents Table of Contents 2 1 Objective 3 2 Introduction 4 3 Analyze Current prices of oil 5 4 Factors determine the price of oil 7 4.1 Demand and Supply 7 4.2 Exchange Rate 9 4.3 Location 9 4.4 Government policies affect oil prices 9 5 Factors that Determine Market Oil Demand 10 5.1 The price of the main product 10 5.2 The price of …show more content…
(Worldoils, 2012) Figure 3 Historical Oil Prices Chart for 10 Years From the chart above, we can see that the price of oil increasing from 2002 to 2008, and face a dramatically drop in 2008, and face an increasing trend onwards. The drop in 2008 due to the slow economic growth and reduce the consumption of oil around the world. Factors determine the price of oil There are variety factors determine the price of oil, it’s including quantity of demand, stability of supply, currency exchange rate, location and government policies. Demand and Supply P Price of oil (USD) Q Quantity (Gallon) Oil Market Supply Curve Demand Curve Q1 P1 Figure 4: Demand and Supply curve The main factor that affects the price of oil in the market is supplies and demands. “An Oil market is like a global auction, the highest bidder will win the supply. When the demand is high and the supply is low, the bidder needs to pay higher price to buy the oil; when the supply is abundant over the current demand level, the bidder will wait and purchase at the lowest price as possible.” (Khodorkovsky) Besides, due to the rapid economic expansion in some country like China, Brazil, Russia and India, the demand for oil product is increased dramatically. “Global oil consumption grew by a below-average 0.7% per day.” (BP, 2012) This lead the price of oil grows up every year. The chart below shows the top ten
Another cause for the decline in oil prices is caused by an increase in consumers purchasing more fuel efficient vehicles, such as hybrid or electric vehicles. In many countries today, especially in North America, there has been an increased demand for fuel efficient vehicles. This is evident in TV commercials which are advertising more and more vehicles that get 40 to 50 miles per gallon, and by the ever increasing commercials for electric vehicles. Consumers are tired of paying outrageous prices for oil and are demanding more for their money. As this demand continues to grow, the demand for oil will decrease.
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.
The demand of gasoline has increased steadily over the last twenty years. In 1981 the U.S. averaged 6.5 million barrels of gasoline consumption per day. By comparison, in 2004 the U.S. averaged 9.2 million barrels of gasoline consumption per day. For most of this time period, gas prices stayed relatively the same. This is because the U.S. refineries increased their production to meet the demand and maintain the equilibrium price. Also during this same time period worldwide demand for crude oil increased 27%. Crude oil producers also increased their production to meet the demand keeping prices the same.
United States domestic production has nearly doubled over the last several years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping. There are signs, however, that production is falling in the United States and some other oil-producing countries because of the drop in exploration investments. But the drop in production is not happening fast enough, especially with output from deep waters off the Gulf of Mexico and Canada continuing to build as new projects comes online. On the demand side, the economies of Europe and developing countries are weak and vehicles are becoming more energy-efficient. So demand for fuel is lagging a bit.
The causes for WTI crude oil and its price changes are all about supply and demand. If consumers are trying to cut down on there use of oil because it is getting to expensive then the supply is higher then the demand therefor the price of oil will go down to try and get consumers to buy more oil and stimulate the oil trade. If a large amount of people are demanding oil and the supply cannot keep up with the demand then the demand is higher than the supply therefor the price will go up to slow down the trading of oil.
For example, the Intercontinental Exchange while oil prices have not been decided on by oil producers such as Niami refinery fires, Nigerian Pirates and global oil markets. The laws of demand and supply are also predicted by the increase and decrease in the prices of oil. Oil prices are driven by the increase in demand for oil which has limited or completely destroyed the gains for suppliers and producers. While the U.S still consumes more oil than any other country, it is evident from the increase in oil demand that developing countries such as China, India and Japan are driving oil prices higher by their continous growth in oil demand (Anderson, 1).
In the recent months, the prices of crude oil have dropped from 140 dollars per barrel to 60 dollars a barrel in the latest date. To begin with, there is technological revolution in the energy extraction referred to as “fracking” which has significantly increased supply of natural gas and petroleum in the America, allowing them not to depend heavily on the foreign sources of crude oil. Secondly, Saudi Arabia and the other countries
In the year 2050, the whole world notice that oil was starting to become scarce. One thing all the countries saw was all the oil refineries were starting to go out of production which lead to high prices. Although
Oil-The article”OPEC #1”explains the oil prices.The Oil of the Middle East is the price of oil has fallen by nearly half in just six months.Anyone who buys oil or gas is happy because the prices are low.Car and truck drivers, airlines, and shipping companies are all happy because they don't have to spend as much money on gas. Oil companies are not very happy. They are losing money.A barrel of oil now costs $58 and last summer it was $107.Oil prices have gone down and people are happy,at least some of
Until the above said period, the OPEC countries were the main producers of the natural oil and they worked as the cartel and they determined the quantity to be produced based on the market demand and they kept the price at a higher rate and prevented the fall of the price by reducing the production of oil. The introduction of the shale oil made the problem. The higher demand and lower supply of
Graph 1 represents the major companies and nations which product crude oil. It also represents how the bent crude oil price has fluctuated from 2004 until 2014. From 2004-2008 it is evident that there is a steady rise in oil prices, from $35-$150 per barrel. Towards the end of 2008 it is evident that there is a significant drop in oil prices, from $150- $32 per barrel. This is due to the Global Financial Crisis (GFC) where the stock market collapsed on October 28, 1928, through this came the rapid decrease in oil prices. From 2009-2011 there is a steady increase in oil prices which was caused by the stock market repairing itself from impact of the GFC. In 2013 we are able to see declining oil
When people think of oil, they think about the stuff you put in your car or what you use in food. Oil is so much more than that. Oil is fuel, gas and energy that we use and need in life. So we ask, why does the price of oil change so much and why does that price change affect the price of our food? Oil has such a large demand because we are dependent on it for so many things like transporting resources, running equipment, heating our houses, making our roads and many other things we use on an everyday basis (Westhoff).
Oil is a limited commodity with an unlimited demand. Very few nations have the luxury of having their own supply to which they can fulfill their own needs, while other countries clamour for what they can get . The countries with oil realized instead of competing with one another on exports , it would be much more profitable to simply work together and cooperate in their production of oil, rather than compete. In doing this, these countries will then be able to influence the market magnitudes more.
What is causing the sudden decline in oil prices? A. There is an increase in the supply of oil but the demand has decreased due to interest in energy efficiency. a. The production of oil in the United States has doubled in the last several years (Krauss). b. The price for a barrel of oil is around $30 dollars compared to over $100 in 2014 (Bowler).
There are two primary factors influenced the market of energy: population and economic output (Exxon Mobil, www.exxonmobil.com). According to International Energy Agency (International Energy Agency, www.oilmarket.org) global oil product demand will rise up from 84.5 mb/d in 2006 to 86.1 mb/d in 2007, and in forecast for 2030 will grow 1.8% per year. The world oil prices are forecasted to decline from $68 per barrel in 2006 to $49 per barrel in 2014, then rise to $59 per barrel in 2030 ($95 per barrel on a nominal basis). Total world liquids consumption rises to 118 million barrels per day in 2030.