The Production Of Oil Prices

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.

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).

As most of the world knows oil prices have been plunging downwards since June 2014, in which a barrel of oil has fallen more than 70 percent from that time, was $90- $100 a barrel, now $40 a barrel and approaching $30 a barrel. This fall basically came about due to rapid increase in global oil production which started to exceed its global demand therefore forcing prices down. “Earnings are down for companies that made record profits in recent years, leading them to decommission more than two-thirds of their rigs and sharply cut investment in exploration and production. Scores of companies have gone bankrupt and an estimated 250,000 oil workers have lost their jobs.” (Krauss, 2016).

Thomas Edison invented the light bulb in 1879. The first oil well was drilled in Pennsylvania in 1859. Since those two historic discoveries, technology and industry have exponentially grown to a point of absolute necessity today. The requirement of energy and oil throughout the world grows with advancement. As developed countries, like the United States, Japan, China, and Canada, progress and grow in population, more demands for energy and fuel are created. Likewise, as less advanced countries bring themselves into the global economy, they will also have increased energy and oil demands. So then the question begs, where are the resources for these demands coming from and what options will there be for future demands? Given current needs

The low price of oil can be directly felt when filling up a car’s tank with gas. For many years when the price of oil drops, there is growth within the economy, however, the recent decline has yet to deliver the traditional economic boom. Low oil prices have a negative impact on the U.S. economy as well as the global economy, with a direct correlation to politics. The low prices affect the U.S. economy in many ways. Cheap oil halts growth in businesses and makes companies less profitable. These actions will have ripple effects throughout the U.S. as a whole. There are small segments of business that will be more successful when oil is so inexpensive but the negatives far outweigh the positives.

Nonetheless, the countries that export a lot of oil will attempt to stabilize their economy by reminding the world’s population that they are very dependent on oil for producing electricity, consumer products, and fuel.

In the last six months of 2014 the price of crude oil experienced a dramatic decline from over $100 per barrel to around $50 per barrel. Further oil price declines throughout 2015 and into 2016 saw oil plunge to less than $30 per barrel. This drastic reduction in price hurt the profit margins of oil extraction companies, leading to several phases of reduction in operating activity and investment, as well as sizeable employee layoffs. According to Barrionuevo (2016:2), approximately 50% of the jobs in the greater Houston area are energy related. Thus, as the oil price plummeted, Houston experienced a significant loss of jobs, many of which were highly paid, eventually resulting in a decrease in personal income.

The impact of lower oil prices on a global basis is expected to assist the global economy overall, however for countries that have a higher reliance on the production and sale of oil (net exporters of oil) then those economies will be negatively impacted.

Oil and natural gas effects consumer 's daily lives in aspects of not only petrochemical costs but also items such as electricity, clothing, and medication. Today the saying has been, "as goes oil, so does the economy" but the price of oil has not always been known in this way. Two reasons said to be responsible for the rising prices in oil have to do with wealthy countries and the fact that predominant oil

There are multiple countries sabotaging all of the world’s oil prices. This means there are multiple conspiracies to why the oil energy is plummeting. For one, Saudi Arabia is plotting to sabotage Iran by holding down the prices of oil. Iran is also supposed to re-enter the global economy with a well-educated young work force as well as with a strong manufactured base. While Iran is trying to upgrade, Arabia is trying to prevent them from doing so. They are trying to gain more influence in the Middle East by gaining more land for oil wells. Iran is not the only country Arabia is trying sabotage, Russia is also in the mix. Arabia and Iran have been at it for years but now Arabia has partnered with the U.S. to financially help them because in order for them to balance out their budget they need $140 a barrel. With all of this happening you have to ask yourself, “If the U.S. is struggling in the

A number of theories have emerged as to why the price of oil has taken a severe plummet since its peak in June 2014. The price of crude oil was around $115 a barrel at in June 2014. By 2015, it had fallen by more than 40% to below $70 a barrel. (Petroff) There has been exhausting speculation over this matter including reasons relating to geopolitics, natural disasters, economic trends and the lack of regulation by the Organization of Petroleum Exporting Countries (OPEC). OPEC is the vicar of oil pricing, but has clearly contributed to the drastic price drop in the past year. The standard of OPEC is to ensure balance in the oil markets in order to secure a proficiently economic and steady supply of petroleum to consumers. (OPEC) In November 2014, OPEC failed to reach an agreement on setting a standard of how much petroleum each OPEC nation could produce, which essentially drove down the price of oil. If all of the countries in OPEC are not mandated to supply a fixed amount of oil, they will produce enough to drive down the price making it comfortable for consumers and importers to buy. This has been part of the issue since the plunge began. This de-regulation creates competition because each oil-producing country wants to set the most profitable price, which requires oil production exceeding the typical OPEC standard. The plummeting prices of oil have created positive and negative effects in different industries. The transportation and industrial industry experience lower

Harold Hotelling theorised that since oil is an exhaustible resource that once burnt cannot be reused, the price of oil should exceed the marginal cost even in a perfectly competitive market. This is a result of unavoidable geographical limits, if we assume the short-run demand price elasticity of -0.10 and we know that next year oil production will be 90%, this means that the price tomorrow will be double todays price. In this example it would make sense for the producer to ‘store’ the oil in the ground waiting to sell it for a greater amount next year. Therefore in a competitive equilibrium, the owner should receive compensation in exchange for producing the oil today, this compensation is the scarcity rent and should leave the producer

As the narrative commonly begins, oil prices are way down. Way way down. In fact, since June 2014, the price of a barrel of oil has been cut in half reaching levels last seen during the bottom of the 2009 recession. The causes of such rapid declines are best attributed to a simple supply and demand model. On the supply side, domestic oil production has doubled in the last six years. As the world’s largest crude oil consumer in the world, the US was once a large and reliable buyer of foreign oil. But with domestic demand for foreign oil waning, exporting countries such as Saudi Arabia, Nigeria, and Algeria have had to find new

Did you realize that at our current consumption of crude oil and at our current status of known reserves, we have approximately 40 years of reserves remaining? This is a startling fact when we take into account all the products that are produced from refined crude oil or from its by-products. Many people are aware of the price increases they feel at the gas pump, but has anyone ever considered the cost or investment put forth in finding new reserves? Under the right conditions, oil would sometimes seep up to the surface, but in our times, the search for new reserves is more costly and dangerous.

Harold Hotelling theorised in 1931 that since oil is an exhaustible resource that once burnt cannot be reused, the price of oil should exceed the marginal cost even in a perfectly competitive market. This is a result of unavoidable geographical limits, if we assume the short-run demand price elasticity of -0.10 and we know that next year oil production will be 90%, this means that the price will be double what it is today. In this example it would make sense for the producer to ‘store’ the oil in the ground waiting to sell it for a greater amount next year. There in a competitive equilibrium, the owner should receive compensation in exchange for producing the oil today, this compensation is the scarcity rent and should leave the producer indifferent between producing today and in the future.