Describe The Factors Currently Driving The World Demand For Oil Case Study
Individual Assignment – Managerial Economics (MBA ZC 416)
Name: VEMULAPALLI GAGAN PRASAD
ID No: 2016HB58040
Email ID: 2016hb58040@wilp.bits-pilani.ac.in
Topic No: 9
Describe the factors currently driving the world demand for oil; why has the price fallen recently below $35 per barrel? How did the OPEC members react to this change? Will world oil prices rise in the future? Why or why not?
Introduction:
Before we know about factors that are currently driving the world demand for oil, let us first know why oil is important in our life. Gasoline is made from crude oil. Lubricating oil is also used to keep our automobile engines from getting too hot and to ensure that all moving parts of the machinery are kept in good working order. In fact, our …show more content…
In the winter, more heating oil is consumed, and in the summer, people drive more and use more gasoline. Even though markets know when to expect these increased demand periods, the price of oil rises and levels out with the season every year. Extreme weather conditions (hurricanes, tornadoes, thunderstorms) can physically affect production facilities and infrastructure disrupting the supply of oil and induce pricing spikes.
Finance Markets: Oil brokers match buyers and sellers of crude oil, and trade contracts for future delivery of oil, known as “futures”. Clients purchase futures to hedge against oil price increases that could adversely affect their profitability. Oil producers sell oil futures contracts in order to lock in a price for a specific period of time and oil brokers purchase oil futures to promise future delivery of oil at a certain price.
Production: The location of reserves, the amount and properties of oil found, the geological formation in which the oil is found, and the costs of extraction are all determined by physical factors. As oil is a nonrenewable natural resource, physical factors significantly affect the cost of supplying oil from a particular reserve. In addition, substantial investment is required to continuously discover new reservoirs and to develop …show more content…
The average price of oil in January 2016 was well below $35. Oil did not recover until April 2016, when oil went above the $45 mark.
Conclusion:
My opinion is that the fall in the oil prices is because of all incidents like political unrest in OPEC countries , lack of investments into experimenting innovative produvtion techniques & lack of coordinated efforts between OPEC and Non- OPEC countries coincidentally happening together. There is the chance of prices being increased in future because countries imposing strict environmental laws to reduce pollution levels, which leads to reduction in demand in transportation sector. Also OPEC countries agreeing to cut their production levels in turn decreasing supply.
Name: VEMULAPALLI GAGAN PRASAD
ID No: 2016HB58040
Email ID: 2016hb58040@wilp.bits-pilani.ac.in
Topic No: 9
Describe the factors currently driving the world demand for oil; why has the price fallen recently below $35 per barrel? How did the OPEC members react to this change? Will world oil prices rise in the future? Why or why not?
Introduction:
Before we know about factors that are currently driving the world demand for oil, let us first know why oil is important in our life. Gasoline is made from crude oil. Lubricating oil is also used to keep our automobile engines from getting too hot and to ensure that all moving parts of the machinery are kept in good working order. In fact, our …show more content…
In the winter, more heating oil is consumed, and in the summer, people drive more and use more gasoline. Even though markets know when to expect these increased demand periods, the price of oil rises and levels out with the season every year. Extreme weather conditions (hurricanes, tornadoes, thunderstorms) can physically affect production facilities and infrastructure disrupting the supply of oil and induce pricing spikes.
Finance Markets: Oil brokers match buyers and sellers of crude oil, and trade contracts for future delivery of oil, known as “futures”. Clients purchase futures to hedge against oil price increases that could adversely affect their profitability. Oil producers sell oil futures contracts in order to lock in a price for a specific period of time and oil brokers purchase oil futures to promise future delivery of oil at a certain price.
Production: The location of reserves, the amount and properties of oil found, the geological formation in which the oil is found, and the costs of extraction are all determined by physical factors. As oil is a nonrenewable natural resource, physical factors significantly affect the cost of supplying oil from a particular reserve. In addition, substantial investment is required to continuously discover new reservoirs and to develop …show more content…
The average price of oil in January 2016 was well below $35. Oil did not recover until April 2016, when oil went above the $45 mark.
Conclusion:
My opinion is that the fall in the oil prices is because of all incidents like political unrest in OPEC countries , lack of investments into experimenting innovative produvtion techniques & lack of coordinated efforts between OPEC and Non- OPEC countries coincidentally happening together. There is the chance of prices being increased in future because countries imposing strict environmental laws to reduce pollution levels, which leads to reduction in demand in transportation sector. Also OPEC countries agreeing to cut their production levels in turn decreasing supply.