full oil global situation

7/26/2019 Full Oil global situation

1/10

Table of Contents

Introduction.................................................................................................................. 2

Global Oil Price.......................................................................................................... 2

Question B................................................................................................................. 6

REFERNCES................................................................................................................ 9

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


2/10

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 theabsence 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

#emand

#emand can be simply defined as a customer/s desire or need to experience a service or

possess a product. However #emand is restricted by the customer's ability and immediate


3/10

readiness to make payments on the offered price for the service rendered or product offered. The

0aw of #emand states that if all other things are constant and remain the same the higher the

price of a good increases then the lesser the quantity of the good demanded will be and this will

in turn reduce the price of the good the more demanded quantity.

(n economics the supply of a particular good or service can be simply defined as an item's

quantity that is manufactured and offered up for sale.

The 0aw of upply states that if all other things are constant and remain the same the higher the

price of a good increases then the greater the quantity supplied and this will in turn reduce the

price of a good the lesser the quantity supplied.

Market Euilibriu!:

*ource- 1ipom (mages2 https-33www.gipom.com3search3!conomic4equilibrium3images5lang6fr+

An equilibrium can be simply defined as a situation whereby forces that conflict each other

eventually balance each other out. An equilibrium transpires in a market when there is a price

balance between the sellers and buyers. !quilibrium price is the price in which the quantity

demanded is equal to the supplied quantity. The equilibrium quantity can be simply defined as

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


4/10

$rice ad7ust when plans don't )atch

"ecre!ent in t#e Global oil $rices and Illustration %it# &ra$#:

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:;


5/10

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 themanufacturing sector decreased.

Su$$l' factors t#at affect t#e Oil $rices:

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!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


6/10

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.

Question B

The collapse of the global oil prices has brought about its share of 7oy and misery the 7oy is

being shared by counties that import a lot of the oil *mostly some !uropean countries+ they use

and the misery has hit oil exporting counties *members of the Organi%ation of the $etroleum

!xporting Counties+ high as oil prices are now at an all,time low *below J


7/10

reduce the supply of oil in the market which could have driven its demand both countries

combined produce almost " million barrels of oil daily. Thirdly the audi Arabians and their

allies at the gulf countries came to a decision to not help restore oil prices by sharply cutting their

own production and supply even though they are well enough financially to stomach lower oil

prices *it costs audi Arabia only J> , JK to get the oil out of the ground+ added to the fact that

they possess approximate J:: billion in reserves. The reason behind this could be that they fear

that rival countries such as ussia and (ran who they have no fondness for would reap the

benefits of such a gesture. The last and most influential reason behind the drop in oil prices is

because the ?nited tates of America who used to be one of the biggest oil importing countries

has instead become the world's largest oil producer and even though it doesn't export oil to any

other country it has crushed the demand of oil by importing a lot less than it used to (CNBC, 2015).

The ?nited tates of America was able to afford the aforementioned twist by learning to

tap the crude oil that's contained in hale. hale drilling is very expensive because the shale rock

must be broken by high,pressured water and must be dabbled in chemicals to get the oil to flow

out and the labor costs for this type of drilling is also very high. Eut despite this the ?nited

tates of America has now experienced such as surprisingly large boom that has pushed the

?nited tates of America's Oil and 1as to be the biggest producers globally falling short only to

audi Arabia. Once the Oil prices crashed from J;:: to less than J


8/10

*ource- http-33www.bbc.com3news3business,9>"G>;9+

The worst affected among the oil price reduction losers are ussia Bigeria and Iene%uela.

ussia because despite the pressure they face from numerous sanctions from the !uropean ?nion

and other western countries they lose J9 billion in revenue for every single dollar decrease in oil

price and because of this a warning was issued by the world bank that ussia's economy would

shrivel below :.;: if the oil prices do not recover. Bigeria and Iene%uela are very large world

oil exporters but as a result of economic mismanagement by corrupt governments their inflations

have risen above


9/10

keep their inflation rate stable and ease their account deficits. (ndustries are now able to pay

more taxes to their governments and turn in large profits as a result of en7oying lower costs of

energy Oil consumers are now able to keep more cash in their pockets and more companies can

now engage in 7oint ventures and acquisitions (The Economist, ND).

o to summari%e the drop in oil prices has been more of a blessing than a curse and a further

decrease will surely be welcomed by oil importing countries. (t is important however to note that

Oil is priced in ? dollars and thus all importers of oil would need to have dollars to be able to

buy oil and this encourages large scale borrowing of the ?. dollar and thus increases its scarcity

in the global currency market. (n the past years the low interest rate offered by the ?nited tates

of America has largely encouraged the borrowing but an increase in that interest rate would

further boost the ?. economy and give it more monopoly over the foreign oil and currency

markets. Though the current oil prices make the affected countries susceptible to international

pressure there is also a chance that they might lash out. Therefore it is advisable that oil prices

do not decrease any lower than current market price (Inman, 2015).

REFERNCES

CBEC. *9:;


10/10

Alex C.P. )a%lanB. )asot). Aums). TanB.Q. Peo0.H. and ia).. *9:;:+.

L)alaysia's Competitiveness in Attracting 8oreign #irect (nvestment *8#(+M. )ultimedia

?niversity 8aculty Eusiness and 0aw. etrieved from

http-33blog.xelacity.com39:;:3;93malaysias,competitiveness,in,

attracting.htmlRsthash.bmuhe0im.dpuf

$roperty howrooms.*9:;G+.(nvestment 1rowth in )alaysia. etrieved from

http://www.propert!showrooms.com/mala!sia/propert!/investment/mala!sia-

investment-growth.asp
http://blog.xelacity.com/2010/12/malaysias-competitiveness-in-attracting.html%23sthash.bmuheLim.dpufhttp://blog.xelacity.com/2010/12/malaysias-competitiveness-in-attracting.html%23sthash.bmuheLim.dpufhttp://www.propertyshowrooms.com/malaysia/property/investment/malaysia-investment-growth.asphttp://www.propertyshowrooms.com/malaysia/property/investment/malaysia-investment-growth.asphttp://blog.xelacity.com/2010/12/malaysias-competitiveness-in-attracting.html%23sthash.bmuheLim.dpufhttp://blog.xelacity.com/2010/12/malaysias-competitiveness-in-attracting.html%23sthash.bmuheLim.dpufhttp://www.propertyshowrooms.com/malaysia/property/investment/malaysia-investment-growth.asphttp://www.propertyshowrooms.com/malaysia/property/investment/malaysia-investment-growth.asp

full oil global situation

Documents