Preview

The Impact of Rising Oil Prices on the South African Economy in Relation to the Demand and Supply of New Motor Vehicles

Powerful Essays
Open Document
Open Document
1185 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
The Impact of Rising Oil Prices on the South African Economy in Relation to the Demand and Supply of New Motor Vehicles
TABLE OF CONTENTS

INTRODUCTION. 1
SUPPLY VS DEMAND 2
FINDINGS 6
PRIMARY FACTORS. 7
CONCLUSION. 7
REFERENCE. 9

THE IMPACT OF RISING OIL PRICES ON THE SOUTH AFRICAN ECONOMY IN RELATION TO THE DEMAND AND SUPPLY OF NEW MOTOR VEHICLES.

INTRODUCTION

A continual upward trend in the price of crude oil in recent years has led to increasing concerns about its economic implications, both abroad and in South Africa. This study looks at the rising oil prices and their impact on the South African economy within the framework of supply and demand, looking at the impact rising oil prices has had on demand and supply for vehicles as well as the impact on South African GDP growth. Cognisance must be taken of the fact that this slowdown in car sales is not only related to high fuels prices but is also as a result of successive increases in domestic interest rates, the introduction of the National Credit Act, high debt levels among consumers, and high levels of debt-servicing costs. For the purpose of this assignment these factors are not considered.

SUPPLY VS DEMAND

The demand for goods refers to the relation between the price of a good and the quantity of the good that consumers will be willing to pay for it.

Oil has a relatively inelastic demand mainly due to the fact that there currently is no suitable and viable product substitute for it. Despite world production problems, rising prices, war and economic slow down at various periods, the price of oil has shown a resilient projected increase in price (see fig 1). Oil price is very price inelastic. Fig 1. Source: WTRG Economics (2007)

The oil supply demand relationship has, to an extent fuelled or influenced, the oil price hikes however this cannot be established as a fixed indicator of the rising oil price trend. Fig 2. Source: WTRG Economics (2007)
However when looking at the cross price elasticity of demand of motor vehicles in relation to Oil, we see a highly elastic environment.



References: Association for the Study of Peak Oil and Gas (ASPO). 2006. Newsletter No. 69. Available online: http://www.peakoil.ie/newsletters Bellamy, D. 2006. "The Macroeconomic Effects of the Crude Oil Price on the South African Economy." Unpublished Master 's Dissertation, University of Cape Town South African Petroleum Industry Association (SAPIA). 2006a. Basic Fuel Price Formula Wakeford, J.J. 2006. "Risks to Global Trade and Implications for South Africa 's Economy and Policy." DPRU Working Paper No

You May Also Find These Documents Helpful

  • Good Essays

    competitive analysis

    • 510 Words
    • 2 Pages

    The demand for oil may or may not decrease even when the price remains constant. The reasons why the demand may change are changes in income, changes in needs, changes in the number of consumers in the market, expectations of future price, and prices of substitute or compliments change…

    • 510 Words
    • 2 Pages
    Good Essays
  • Good Essays

    ECON 545 Project 1

    • 730 Words
    • 3 Pages

    Crude oil prices are determined by worldwide supply and demand, which is why as countries around the world developing rapidly, the demand for and price of gas increases rapidly. Natural disasters and Political conflicts in major oil producing regions such as Saudi Arabia, Iran and Iraq can also affect the price of gas. The Organization of Petroleum Exporting Countries (OPEC) also has significant influence over the price of crude oil because its members produce over 40% of the world’s supply of oil and own more than two-thirds of the world’s estimated oil reserves.(2)…

    • 730 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Week 1 Eco 365

    • 635 Words
    • 3 Pages

    In today’s economy many trends in consumption patterns can determine where the supply and demands are needed. In the article “East Bay Oil Exports Have Become Huge Business,” by Glantz (2012), it touches on the subject of trends and consumption of oil. Many people are aware; however forget that there is a whole lot of oil around us that can be used. This paper will discuss and address the utilities derived, the change that demand for the product or service of market and equilibrium prices, what has occurred to change the demand and supply of the oil, and is demand for oil product or service price elastic or inelastic.…

    • 635 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Gm545 Project 1

    • 846 Words
    • 4 Pages

    Crude oil and petroleum product prices can be affected by events that have the potential to upset the flow of oil and products to market, including geopolitical and weather-related developments. These types of events may lead to actual disruptions or create uncertainty about future supply or demand, which can lead to higher volatility in prices. The volatility of oil prices is inherently tied to the low responsiveness or "inelasticity" of both supply and demand to price changes in the short run. Both the stock of oil-using equipment and oil production capacity are relatively fixed in the near-term. It takes years to develop new supply sources or vary production, and it is very hard for consumers to switch to other fuels or increase fuel efficiency in the near term when prices rise. Under such conditions, a large price change can be necessary to re-balance physical supply and demand following a shock to the system.…

    • 846 Words
    • 4 Pages
    Better Essays
  • Better Essays

    Discuss how rising oil price might affect the macroeconomic performance of an economy (25 marks)…

    • 1343 Words
    • 4 Pages
    Better Essays
  • Satisfactory Essays

    changes as a result of the rising world price of oil and gas (Fig. 1). In…

    • 2314 Words
    • 14 Pages
    Satisfactory Essays
  • Better Essays

    Addicted to Oil

    • 1208 Words
    • 5 Pages

    Oil demand has always been increasing, but until recent years the supply has been able to keep up with demand. The graph below shows that until…

    • 1208 Words
    • 5 Pages
    Better Essays
  • Good Essays

    In October of 1973, OPEC announced that it would increase the price of oil by 70% by cutting production by 25% and a production cut of 5% each month after (Yurgin). At the time, oil was selling for $3. This shock caused the price to increase to $5.12 (Reid). Two days after this initial shock, the price increased again to $11.65. This would cause a new aggregate supply curve left of the original supply curve (decrease in supply). This didn’t have a great effect on demand because oil demand was calculated at the time to have a -.3 to -.35 slope (Issawi). The slope is otherwise known as inelastic demand. The price of oil would increase without there being much of an effect in demand. The price of oil increased by four times, but the world oil output only decreased 7%.…

    • 2031 Words
    • 9 Pages
    Good Essays
  • Better Essays

    Oil prices have hit a record high at $100 a barrel. Prices have doubled from the rates seen in January 2007 and more than quadrupled since 2002. What factors are causing this unremitting increase and what are the likely consequences for consumers and the global economy? What is causing the latest price spike? This was triggered by concerns about violence in Nigeria and Algeria as well as the delay of the elections in Pakistan. The assassination of the former Pakistani Prime Minister Benazir Bhutto increased oil prices because stability in Pakistan is important to US policy in the Middle East. Threats to oil workers and facilities in Nigeria have cast a long-term shadow over oil supplies from the world's eighth largest oil exporter. Suspected militant attacks on Wednesday in Nigeria's main oil city, Port Harcourt, heightened concern over the potential for further disruptions in shipments. "With the military and the militant warlords engaged in a violent tit-for-tat, the risk for oil disruptions in Nigeria remains higher than in the past few months," said Olivier Jakob of Petromatrix. The weak dollar, which makes it cheaper for importers to buy dollar-denominated oil supplies, is also a major factor. Is demand for oil continuing to soar? Yes. The biggest catalyst for oil's seemingly remorseless rise has been the simplest economic driver there is: the balance between demand and supply. Demand is at an all-time high, fuelled by the continued breakneck economic expansion of the Indian and Chinese economies. With more than a billion people in each country, and both economies growing fast, manufacturers and consumers are sucking in energy at an ever-increasing rate. China overtook Japan as the world's…

    • 1399 Words
    • 6 Pages
    Better Essays
  • Powerful Essays

    Oil Industry

    • 1954 Words
    • 8 Pages

    OPEC reported in 2001 crude oil reserves stood at 1,074,850 million barrels of which 79% were in OPEC countries. They also reported that the world oil demand in 2000 was at about 76 million barrels per day. Oil is a limited resource and may one day run out. According to OPEC, there is enough oil in the member country 's reserves to last another 80 years, while non-OPEC country 's reserves might last only 20 years. This paper will attempt to look supply and demand by analyzing gasoline markets on many different levels ranging from the local market to the international market ("OPEC: Frequently Asked Questions" 5 Oct 2003).…

    • 1954 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    As more nations move into an industrialized economy, the world demand for oil increases. Other factors which can impact demand are colder than normal seasons, war, industrial growth spurts, and the increase in leisure time and summer travel. The total supply of oil is a comprised of the number of barrels oil producing countries can provide plus the available stocks sitting in storage either on land or at sea in transit. There just as many variables which could…

    • 857 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    The oil industry is a large and fast depleting industry. The main market oil producing countries and organizations such as Opec and Opec+, and a few other non-Opec countries indicate that their current production rates (reserves) are slowly being eaten up. This is shown by (graph 1)…

    • 1908 Words
    • 6 Pages
    Powerful Essays
  • Satisfactory Essays

    The rise of the oil price has been a disaster for all the people around the world because the benzene/gas prices have risen driving a car has become very expensive. When you load your car with fuel (Euro95 in Holland) you need to pay between €1.654 and €1.714 per litter.…

    • 567 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    To Drill or Not to Drill

    • 550 Words
    • 3 Pages

    Over the past 40 years, investment decisions have been made by the United States based on such events that have affected the oil industry. The recent increase of oil prices has affected the economy negatively. In the 1970’s, oil prices stayed around $20 a barrel. In 1946, the average cost for a barrel of oil was around $1.60 compared to $96.80 in 2008. (Williams, 2008) The change in the US dollar is another cause for the fluctuating prices in oil demand. The need and demand for oil is leaving us dependent on other countries such as Libya, Nigeria, Iran, Iraq, and Venezuela.…

    • 550 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    econ 545

    • 1206 Words
    • 5 Pages

    But in the news, you continue to hear of crude oil shortages. Big Oil Companies reported huge profits on high gasoline prices continuously for the past 4 months. The Big Five oil companies made $36 billion in profits in the second quarter of 2011. Consumers are now looking for alternative solutions in transportation because of the unsavory price fluctuation of gasoline prices while oil companies post major profits. Another factor affecting the price of gasoline is the price of the crude oil the raw material that the gas is produced from. On the marketplace many factors can affect the price of the crude oil and the gasoline that…

    • 1206 Words
    • 5 Pages
    Good Essays