The Effects Of Oil Prices On The Demand And Supply Of Oil

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.

Several oil-countries have been facing economic and political turbulence as a result of the crash in oil prices, and there is disagreement among OPEC as how to handle the situation. (Krauss) While this is happening, America’s oil production continues to rise, as it inches closer to becoming an energy superpower in production and consumption; and countries that depend on their oil exports face recession.

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 United States consumes more than 25% of the world’s petroleum products which is a large percentage, considering only 3% of the world’s oil reserves are produced by the United States. Given the demand for petroleum products such as gasoline, understanding why Crude oil prices have skyrocketed in recent years, is not hard. According to the article “Ending America’s Oil Addiction,” the surge in crude oil prices can be reduced in large part to the simple concepts of supply and demand. (Cooper, 2008)

In a revealing article by George Perry (2001) the author discusses the economic impact that a disruption in the oil supplies would have on world oil prices. He states “Currently 28 percent of the world's crude oil comes from the Organization of Arab Petroleum Exporting Countries (OAPEC) consisting of Arab Muslim nations, some of which are not part of the OPEC cartel. The governing regimes in all these countries are at some risk [due to the war on terrorism].” He goes on to state that in a worst case scenario the economic consequences of oil supply disruption would be “oil prices rise to $161 per barrel driving gasoline price to $4.84 per gallon. The increase in the nation's bill for products of crude oil rises by about 10 percent of GDP, which adds perhaps 15 percent to the inflation rate in the first year. And the recession is the steepest and deepest of the postwar period, with GDP declining nearly 5 percent the first year.”

The featured article “The End of Oil,” the author, Alex Kuhlman argues that oil production is decreasing due to the costs of production are rising because cheap and easily accessible oil is hard to find despite increased consumption.(Kuhlman, 2007). Kuhlman (2007) provides evidence both from oil demand and supply aspects to illustrate the imbalance which causes the end of oil.

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.

This report will consist of the causes and consequences of the changing price of WTI crude oil and recent trends in the global price of oil. It will also include the effects of the ever-changing price of oil on individuals, business firms, governments and the economy.

Within the last year, oil prices in the United States have dropped significantly. As oil drilling in the United States has reached its highest level in over 30 years, consumers are reaping the benefits. Among these gains are record-low prices at the pump, and cheaper oil to heat homes. However, oil prices did not just drop on their own; multiple factors contributed to the fall. Increased domestic production, declining global demand, and competition from other oil-producing nations had led to rapidly dropping oil prices across the United States.

A group of researchers show that oil price fluctuation have significant impact on the economic activity. The significant are expected different from oil importing and exporting countries. (Soytas, Sari, Hammoudeh, & Hacihasanoglu, 2009). However, those countries exporting oil an increase in the oil price considered good news to them. When the price of oil increase the exporting, countries gain more money, but for importing countries when the oil price decreases, it’s going to have an impact on their real economy especial when the country relies on the oil as one of their main source of income. The monetary transmission mechanism which has the control on the interest rate which the oil price have has an impact on

It was once thought that oil was Price Inelastic, yet since the introduction of Hybrid cars, and people cutting down their consumption of oil. Prices have dropped from over $4.00 a gallon and, their demand for oil. The prices still creep higher and it fairly inelastic, but there is a breaking point in a market once thought to be as inelastic as insulin.

What affect does the price of oil and gas have on the economy? How does this affect the daily lives of the entire population? The preceding questions are the basis for the enclosed report. The primary objective of this report is to give a few reasons as to what causes prices of oil and prices of gas to rise. Among these reasons, speculation of things that may or may not happen, like a terrorist strike, is one of the leading factors. Another reason for the continued rise in prices of oil and gas is the constant growth that China is experiencing in population and energy consumption.

The article I intend to analyze in this text appeared in the Yahoo! Business & Finance website. The article points out that "raising global supplies and lower-than-expected demand" for oil most particularly in China and the U.S. has led to a drop in the price of the same and consequently, a decrease in the price of gasoline (AAP, 2013). In this text, I will largely focus on the trends in consumption patterns of gasoline.

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 activity, to what extend specific countries and the global economy can be affected by oil price shocks and whether there is a coincidental relationship between oil prices and recessions as a result of a correlation of the former with other

Crude oil is the one of the most important natural resource of the industrialised nations, which could generate heat, drive machinery and fuel vehicles and airplanes (years, someone). Moreover, the crude oil components are used to manufacture almost all chemical products, such as plastic, detergents, paints and medicines (years, someone). Also, it plays a significant role in expanding technical ability to discover new sources and extending the production lives of existing oil fields. Therefore, constant changes in the price of the crude oil have an impact on a global economy (years, someone).