Oil And It 's Interaction With The Economy

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Afolabi Olatunji-Ojo Managerial Analysis Wednesdays 6-9pm Individual Term paper Crude Oil and it’s interaction with the Economy In his book, Black Gold: The story of Oil in our lives, Albert Marrin said, “By the fall of 1918, it was clear that a nation’s prosperity, even its very survival depended on securing a safe, abundant supply of cheap oil.” Crude oil is one of, if not the most important commodity in the world. And it has become something that is highly tied to the global economy as a result. The rise and fall of oil prices are used as indicators of what’s to come and how to prepare for it. The very prosperity of some nations is directly indeed directly tied to oil production or procurement. In this paper, I will be discussing the…show more content…
These economic, military and political factors even tend to be caused by the fact that the region is rich in oil. This effect isn’t limited to just regions that produce oil. Unrest in the regions that consume oil also has an effect on the price of oil. An example of this can be seen during the American civil war in 1861 to 1865 . Due to the civil war, there was a surge not only in prices but also in demands for commodity in general. Furthermore, some of the factors I’ll examine on the oil industry side includes; supply, demand, political and major events. Historically, there has been a fairly consistent correlation between the price of oil and the U.S. dollar. Usually, when the dollar strengthens oil prices tend to drop and vice versa, when the dollar weakens, oil prices tend to rise. There does appear to be a price cycle in which major peaks in the commodities index of oil have occurred around every 30 years, give or take two or three years. The other factors mentioned above are more important than the price cycle when analyzing the price of oil. The concept of supply and demand is quite straightforward in that as demand increases or supply decreases, the price of the service or product should increase. The opposite should also be true that as demand decreases or supply increases, then prices should go down. While this is quite true for most commodities in the market, this is not
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