Oil 's Impact On The Economic Spectrum

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Crude oil is the largest individual source of the world’s energy needs, it’s used in the production of many other products such as plastics, synthetics, fuels, bitumen etc. and is used as a benchmark for the pricing of other energy sources such as LNG. Oil’s impact on the economic spectrum i.e. from the hip pocket of the “man or woman on the street” to national finances cannot be understated. Oil prices are determined through the interaction of physical and financial markets, therefore making it’s pricing exceedingly complex. In Part A of this report, we endeavour to predict whether the Brent crude oil price will be above or below the current “spot” price of around US$60 per barrel in one and five years time and we consider demand concerns in China, supply issues within the US and OPEC (Saudi Arabia especially) as well as global geopolitical impacts. In Part B, fuel is the largest operating expense for an airline and we will assess the vulnerability of the share prices for Qantas and Virgin Australia to movements in the oil price.

Part A
1. Chinese Demand
According to the U.S. Energy Information Administration (2014), China is the world 's second largest oil consumer behind the U.S. and with a fast-growing economy that accounted for one-third of the world’s oil consumption growth in 2013 (and expected for 2014), its demand profile is a key determinant of Brent crude oil price. Factors include:
• It is expected that China will target a Gross Domestic Product
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