The price of oil is determined by supply and demand. The price of oil has been s

Question

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) 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

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

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

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

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

Explanation / Answer

a. It will effect the economy positively as since there is huge consumption demand for Oil, and as price of Oil decreases , it reduces the production and logistic costs for the productd and decrease the price level in the economy.

b

i. The business/industries likely to benefit from the fall of oil are as follows

ii. The business/industries likely to lose out from the fall of oil are as following

Oil Companies

The obvious link between oil prices and profitability is comprised of the companies directly involved with the petroleum industry. The oil sector has various facets, including oil exploration, drilling, refining, and distribution to consumers.

Industrial Companies

Oil companies are not alone in feeling the pain of low oil. Manufacturers and industrial companies are also feeling the pinch as this industry is responsible for supplying the materials to build and expand oil drilling operations. Oil producers are not undertaking new projects at the moment and are instead cutting back production. Makers of steel, machinery and machine parts, and heavy equipment are all affected.

Financial Companies

When oil prices were high, it spurred a flurry of new capital investment in order to extract more expensive and harder to produce oil. A prime example of this is the shale oil boom in the United States which elevated the U.S. to become a net oil exporter.

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