In 2016, the crude oil price movement prices were unpredictable. The OPEC reference basket dropped 10 percent to $43.22 per pound. The ICE Brent and NYMEX WTI both went down by 8.4 percent with ICE Brent at $47.08 per pound and NYMEX WTI at $45.76 per pound. This showed that there were uncertainties in the petroleum market. The future prices were predicted for 2017 that it would move higher. The World’s economic growth predictions was the same at 2.9% for 2016 but increased to 3.1% for 2017. Because of the 3rd quarter of 2016 in Japan and US, the OCED growth went from 1.6% to 1.7%. The demand for oil growth in 2016 has been increasing slightly to 1.24 mb/d. In 2017, the demand will be predicted with a decrease to 1.15 mb/d. OECD will …show more content…
(Citigroup)
The consumption of the oil cause changes in the supply and demand. The United States produces 11 million barrels of oil every day. We are one of the biggest countries to have a big influence on the production and prices of the oil. The basic supply and demand theory explains that the if a product is produced more, the cheaper it should sell. If a country were to double the output of oil day, prices would fall and the Production is high, but the distribution of oil isn’t keeping up with the market. The United States builds an average of one oil refinery per 10 years. This is a net loss due to the fact construction has slowed down since 1970s. Since 1970s, the United States has 8 less oil refineries today. The reason why we are not oversupplied with cheap oil is because of the other countries’ higher net margin and the only operate at 62% of their capacity. Excess capacity is only there to meet future demand. With demand moving accordingly, oil prices will continue to be set mostly by the market — despite external players’ best efforts. (McFarlane)
If the prices of gas go up, then the volume of traffic will go down. The volume of gas consumed will go down quite a bit. The volume of gas consumed goes down more than the volume of traffic is because price increases causes more efficient use of gas. The efficiency use of gas will go up and the total vehicles owned will go
When trading oil it pays to keep an eye on the major consuming nations, as any increase or decrease in usage is sure to have an impact on the commodities performance. Something that is also worth monitoring – with this tying into the performance of major consuming nations – is OPEC, the Organisation of the Petroleum Exporting Countries. This international organisation works to ensure both the stablisaiton of the oil markets, along with coordinate and unify petroleum policies. Current members of OPEC include mass-producing oil nations (13 in total, including Saudi Arabia, UAE, Iran, Iraq, and Qatar). Considering that OPEC has the power to decide policies related to the production and sale of petroleum oil, it certainly has the power to impact the price, flow, and distribution of oil worldwide.
Valuation is the estimation of an asset’s value, whether real or financial, based on variables perceived to be related to future investment returns, on comparison with similar assets, or, when relevant, on estimates of immediate liquidation proceeds (Pinto, Henry, Robinson, Stowe; 2010).
oil in Iran before World War I, is now engaged in all aspects of oil
As it may be grasped from the graph, crude oil price reached its maximum in 2008 and constituted as much as $91.48 per barrel (IBP Oil, 2011:1). The period from 2002 to 2008 was marked by the gradual rise in crude oil prices. In 2009, the indicator was equal to $53.56, and oil prices started growing again (IBP Oil, 2011:1). It may be argued that fluctuations in crude oil prices are also the result of economic influences. It is obvious from the graph
In recent years, the fluctuations of oil prices have gotten the attention of the whole world. From $20s in 2003, it hit a mid-term peak of $148 in mid 2008, then fell to $30 during early 2009, and now back to $70-$80. Economic principles have demonstrated that the rise of oil price is a function of lack of supply and greater demand. We know that oil is lack of supply since there’s no major oil field found in the last 40 years and oil can’t be made within decades. However, the following conundrum has not been resolved: What are the key demand side drivers of price for oil? The price of oil depends on a variety of factors which leads to the increase of price. In summary,
Since summer 2014, the price of oil in the global market has drastically fallen. As measure by the U.S dollar, oil price has declined by around 50 percent from last year. The declining oil price is widely deemed as the effects of the increasing oil supply and decreasing demand in the global market among other factors. Future pricing predictions indicate that the price of oil will hardly be restored the level it was in recent years. The focus of this paper is to describe how the basic supply and demand mechanism has contributed to the decline in global oil prices and the subsequent effects of the prices on various national economies.
Economist has analyzed the causes of decline in world oil prices. Typically, the price of oil is determined by demand and supply of the world market and forecast advance to invest in which level of demand depends on the level of economic activity and behavioral use of energy from humans. The oil price decline has a benefit for oil importers like China, India, Japan, Europe but unfortunately for oil exporters such as: Kuwait, Venezuela, Nigeria, and Iraq. Crude oil prices fell steadily in the past seems to be a result of two main factors being the levels of demand declining and a level of increased supplies (Economic, 2015)
Shocks to the demand and supply of oil, caused by politics, business changes and cycles, and technological advances, cause oil price volatility across world economies. These factors explain the fluctuations that the global oil industry has faced since early 1990s (Aasim, 2015: 5). The economic boom between 2003 and 2008 caused an increase in oil prices, especially in oil-consuming economies such as India and China. On the contrary, petrol exporting nations could not match the high demands for oil. Oil prices increased during the 2008 financial crisis, picking up again in mid-2009 after the developing economies showed signs of economic growth. Oil supplies would later be disrupted by the Arab Spring uprisings in 2010 after which oil prices rose up to between $90$ and $120 per barrel between 2010 and 2014 (Baumeister & Kilian, 2016: 54). As supply exceeded the demand, oil prices would drop by 70% between June 2014 and January 2016. Thus report discusses the effects of oil prices on the aggregate demand and aggregate supply of a petrol importing nations.
In Ghalayini’s study, by investigating the relationship between oil price and economic growth, the researcher found that as economic growth increases the demand for oil increases which pushes up the oil prices. While the increase in GDP growth and economic activity have led to an increase in the energy demand, a feedback relationship exists which can mitigate this effect (Ghalayini, 2011).
The currently high price of crude oil amounting to almost US-$ 70 per barrel (May 2006) definitely has a significant impact on the global economy. But the high oil price does not influence every economy by the same degree. Industrialised nations for instance experience a less severe impact than developing countries do. This is because developing countries are generally more dependent on imported oil and because they are not able to use energy as efficiently as industrialised nations. The cause for their lower efficiency and therefore higher dependence is often a lack of availability of advanced and expensive technologies such as efficient fuel powered vehicles, and expensive oil dependent energy production. On average, developing countries need more than twice the amount of oil to produce the same economic output as industrialised countries do. The impacts described in the following part are valid for both ¬- industrialised and developing countries - but for the latter the impacts on the economy are usually much
Economics is the managnment of scarce resources. We live in the world of scarcity and. Where from basic necessity to luxury even the human being is a scarce commodity. So in order to uncertainity use at the optimum level, we have to use the scarce resources as efficient as possible. Crude oil is a scarce commodity in the world. Its Elasticity of demand and supply both are less elastic.Because of demand and supply factors and also because of other intervening variables like cartel, hoarding, supply shocks etc., day by day prices are increasing and causing demand pull as well as cost push inflation.
In the short run, both global demand and supply of oil are relatively inelastic because it is difficult for them to make large adjustments to price changes in a short period of time. When oil price rises, oil consumers, such as manufacturing firms and households, may not be able to reduce their demand for oil immediately. For example, individuals still need to drive to work and manufacturing firms with long-term contracts still need to run machinery to meet target output. Similarly, an increase in oil price would not stimulate oil supply in the short run. Additional supply generally requires the exploration of new reserves and construction of new infrastructure for delivery which require substantial
The purpose of this paper is to know the factor that make the crude oil price change, because for the last five years, the crude oil price was on the downhill.
IDEAZ B: Plunge in the oil & petroleum-gas market and exploring new areas of energy.
There are several factors that can effect the supply and demand for Crude Oil including OPEC and any rules and regulations they may set for trade, the ever changing inventory of oil as some countries are experiencing depletion and new countries are finding oil. There is also the relationship you hold with the country if you are an importer you must maintain good relations and if you are an exporter the ball is in your court as to how you decide to trade and also OPEC will often get involved if the country is involved.