economics kornelios

7/26/2019 Economics Kornelios

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Introduction:

Crude Oil which is produced from hydrocarbons gathering is also a largely useful and

flammable liquid. The process of gathering Hydrocarbons is natural because it is carried out

thanks to organic material decomposition that seeps out of living things and reaction is

accomplished below the surface of the earth. Animals that existed ages ago that have long since

died and have their remains situated in the earth from millions of years ago eventually turned

into the crude oil.

The !xtraction of Hydrocarbons originated from China and began around the "th century

A#. The $eople of China utili%ed bamboo sticks for the purpose of drilling these wells. The

&black sticks' material that they extracted was eventually utili%ed as the fuel. (n was eventually

found in !urope and )iddle !ast in later centuries.

Crude oil is highlighted as a vital part of the modern life and it can also be classified as one

of the most basic and important energy resource on the planet. Human beings are dependent on it

in a lot of ways e.g. transportation food and other industries are able to run because of it. (n the

absence of oil it would be impossible to attain the standards of the life and the things that

humans are used to in the workplace and at home.

The Oil is usually supplied by a famous multinational oil Company which consists and is

controlled of the biggest oil exporting countries known as O$!C *Organi%ation of the $etroleum

!xporting Countries+. The increment and decrement in oil prices is the result of fluctuations in

supply and demand in the global market.

Global Oil Price:

#ue to its reputation as high,demand global commodity oil carries the chance that the main

fluctuations in price could pose a noteworthy impact on the economy. Therefore global oil prices

are decided and manipulated by the market and a market also refers to an assembly of sellers and

buyers (Mankiw, 2012).

The main two factors that solely impacts on the prices of oil in the global market are-

upply


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the quantity that has been purchased and then sold at the equilibrium price. )arkets almost

always move toward its equilibrium price and it does this because-

$rices regulates buying and selling plans

$rice ad7ust when plans don't )atch

Decrement in the Global oil prices and Illustration with graph:

This graph below highlights the statistics of the average crude oil prices monthly of the Organi%ation of

$etroleum !xporting Countries *O$!C+ during the period between 8ebruary 9:;" and 8ebruary 9:;


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Demand Factors that affected Oil Price:

The domestic production of the ?nited tates of America has almost doubled in the past six years

phasing out other oil imports that need to find another home. Bigerian audi Arabian and Algerian oil

that was once exported to the ?nited tates of America is suddenly competing for Asian markets and thus

the producers were pressured to reduce prices. (raqi and Canadian oil production and exports are steadily

increasing each year and even the ussians despite all their economic problems keep up their supply of

oil.

*ource- Debbooks.com2 http-33www.web,books.com3e0ibrary3Eooks3E:3E>93()13fwk,rittenmacro,

fig:@F::9.7pg+

On the side of demand the !uropean economy as well as the economies of other developing countries are

weakening and vehicles are becoming more energy,efficient. o demand for fuel is slow.

The ecession in the ?nited tates of America could be considered as another reason behind the decline

in the demand for the manufacturing goods and caused the production to drop. #emand for oil used in the

manufacturing sector decreased.

uppl! factors that affect the Oil prices:

Oil price is partly determined by actual demand and supply and also partly determined by

expectations. The recent oil price collapse could also be attributed to the excess surplus in oil in the

market. Alternative energy resources such as shale gas oil sands and shale oil have contributed to

the rise in the global oil supply. The 0arge supplies of oil was discovered in Texas and Borth #akota

have further lessened prices adding to the fact that despite the tensions in ?kraine and the )iddle


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!ast approximately G million more barrels a day are still being produced now which is more than

they pumped in 9:;;.

To add to this the fiasco surrounding the Organi%ation of $etroleum !xporting Countries *O$!C+

which administrates and controls almost ": of the world market eventually did at a meeting in

Iienna on 9@ Bovember reach an agreement on production whilst oil prices were falling and this

further reduced the world oil price.

*ources-Tutor9u2http-33www.tutor9u.net3economics3gcse3images3demandFsupplyFexcessFsupplyFincreas

e.gif+

The increase in the Oil supply is another reason why Oil prices has reduced. According to the fig. ;."

if the supply increased and it moves towards left so because of which Oil prices dropped. However if

there is a decrement in the supply the curve will move towards right and the Oil prices will go up.

economics kornelios

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