Assessment details (1500 Words) The price of oil is determined by supply and dem

Question

Assessment details (1500 Words)

The price of oil is determined by supply and demand. The price of oil has been steadily hovering around the 100$-$120 per barrel mark for many years. Suddenly towards the end of 2014, the price of oil took a downturn and has been dropping ever since. In March 2016, oil has fallen to around $38 per barrel (a fall of over 60%).

a) Base on your understanding of the economic theory of supply and demand; describe why the price of oil has continued to fall so much even though the consumption of oil has not decreased substantially.

b) With oil price falling, there will be some countries that will benefit and some countries which will lose out. How would the fall in price of oil affect the economic of:

c) Huge oil importing countries such as China or India?

d) Huge oil exporting countries such as Saudi Arabia or Iran?

e) Huge amount of oil its own but has a big domestic consumption of oil such as USA or Indonesia?

f) Obviously with the huge fall of oil, there will be winners and loser at the business/industry level, indentify and describe:

g) The business/industries likely to benefit from the fall of oil.

h) The business/industries likely to lose out from the fall of oil.

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The essay must include Harvard referencing for any sources you used. Refer to academic learning skills

Explanation / Answer

a) The oil prices are determined by OPEC coutries which are formed as cartels .Usually the economies are responsible for determining the prices based on the supply and demand in the market .Initially saudi arabia was one of the major suppliers and imported a larger chunk in the economy .When the demand was high countries could supply at a very high price leading to a supply shock .But after 2014 U.S started to drill their own wells to gain higher market share and focus more on domestic production than import , hence the economies could suffice its own demand .The falling global demand led to a fall in the prices for oil suppliers .

b) Oil importing countries like china and india will improve because they shall now recieve oil at lower prices and get higher supplies at cheaper prices . When the imports become cheaper the BOP will improve for these countries .

c) Exporting countries will face a fall in the global demand and will now not recieve a higher prices for their oil supplies .The market becomes more competitive so the players cannot charge high prices in the economy .

d)The self reliant producing countries like USA will have to focus on boosting their economic supplies so that they can fulfil the demand in their economy .By providing oil at a uniform prices the people have more options and markets become more competitive .This will boost income and employment in their own domestic economy .

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