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)
The structure of the world oil market is set to be oligopolistic as the oil market is dominated buy few suppliers, such as Opec and Opec + and the North Sea. For a industry to be classified as an oligopolistic industry it has to have a few large firm which hold a very large amount of output, also the firms must be interdependent, in addition the barriers to entry are very high, because not every country can produce oil, and therefore can not enter the oil market, and take advantage of the abnormal profit.
Before 1970 the world oil market was at a steady position, as the demand was inelastic, indicating that there wasn’t a high demand for oil, which means that the price for oil didn’t change at a significant rate, actually ” the price of oil fell from approximately $1.70 a barrel in 1950 to $1.30″ (Alain Anderton)
However after 1970 people realised that oil is a very efficient and cheap source of fuel, which than lead to the revolution, and demand became elastic and price for oil began to increase “By 1973 the price of a barrel of oil had risen to approximately $3.00” (Alain Anderton) As a result before 1970 there was excessive supply for oil, but after 1970 their was excessive demand, which pressurised the middle east countries to produce more oil, which lead to increase the rate that oil was being consumed.
The Term Paper on Virgin Galactic, Market Reseach on Price
1. Introduction “The Earth is the cradle of humanity, but mankind cannot stay in the cradle forever. Great scientist Konstantin Tsiolkovsky already in the 19th century saw space as a place that has a potential for the future innovations. What at that time was a fantasy today is a business of Virgin Galactic established by Richard Branson. Space does not leave people indifferent. Children dream to ...
As Opec holds a 38% of oil market shares, they tend to have a lot of oilgopolistic power in the oil industry, they can under power many non-Opec countries like America (U.S.A) who are the biggest oil consumers in the world. This can be explained by the amount of money America spend on fighting jet planes and many other different types of war arsenals. We can see the rate of oil consumption by the U.S.A in comparison to the world in (graph 2)
The world oil market also had another threat in the 1970’s where everyone had thought that oil was going too run out which made many non oil producing countries to purchase oil in advance, as well as buying long, this could also relate to the fact that it helped demand to become elastic. Nevertheless the oil didn’t run out, as the fact know many oil companies think that oil will never run out because modern technology will be able to locate more oil, on the other hand many oil geologist are saying that we’re not that far from the peak of oil production, after which oil producing will be decreasing year after year. Another threat in the 1970’s was that the Middle East countries were threatening to cut off their oil supply, however after long discussion they came to an understanding
Many American predict that oil will become an old energy resource and will not be needed, they guess that solar power and natural gases will be used, which will have a knock on effect to the world oil structure.
Overall the structure of the world oil market is slowly depleting for the reason that consumption is growing which is making the demand more elastic leading into price for oil increasing. Also the structure of the oil market is not a free market, as no country can join the oil market.
Explain how the price of oil is determined in the world market?
Oil prices are very significant to the world market, as oil use to be very cheap, however oil prices have risen dramatically mainly because it’s a very use full fuel and provides many benefit, as well as to rumours of it running out also effected the price.
The Essay on Steady Oil Price Hike
The article about the rising oil price indicates two main economic concepts: first, “the rule of supply and demand”, and second, that” human wants is insatiable. ” Oil is a natural resource and it is created by nature through thousands of years. Time is a very important element in the production of oil. Despite the fact that oil wells and rigs are discovered and/or pumped, still, the natural ...
The price of oil is very determined, as it has been rising ever since the 1970’s. At the start of 1970 the price of oil was at a mere $1.30 per barrel than 1973 it increased by $1.70, and at this present day each barrel is worth in between $22 to $28 and still hoping to increase. As we can see that leading oil-producing countries such as Opec mainly controls the oil prices. The prices of oil can only be controlled by the demand of oil, as the supply of oil is not matching to the demand of oil, so if demand increase Opec can cut their supply to keep the prices fair as well as so that Opec can make good profit for a foreseeable future. As the demand increases the countries that require oil can, and will pressurise the oil producing nations to produce more, which can lead into war, which then can lead into an economical problem for the countries that are involved. As we can see in (graph 3) that oil prices have always been fluctuating, especially in 1981 because of the Gulf war.
As oil is very vital it’s needed for many reasons like fuel to run transport to produce plastic and rubber, as well as for many other scientific reasons, for example space research etc. However it is also misused with large projects that don’t help ordinary people and extravagant weapons. Also as the Middle East is a LEDC, there is a possibility that corruption will play on many oil-producing countries in the Middle East. Leading on to economical problems with the country.
The prices can also be determined by the average income of an individual, which will then determine their choice and preference of oil, or even the type of fuel that they use. As research done by leading car manufactures who are trying to develop a car that doesn’t run on oil, and recommend that this will be the future of transport. Therefore if people start earning more income then they may ask for more oil, which will then increase the demand.
As the supply of oil is not matching to demand for oil, the price are increasing as people are assuming that there will be a scarcity of oil, in the up coming future. According to Gordon Smith, who had published an article for oil, indicating that the price of crude oil is still on the increase and is still hovering around $29 per barrel. As Opec hold the largest share of oil they can also control on the output of oil produced per day, so even if any minor oil producing nation lower their oil price, Opec can afford to lower them even more which will lead into the minor oil producing country to end up being bankrupt. Opec can determined weather the oil producing countries can supply to the worlds demand as well as increasing the prices of each barrel of oil.
The Essay on Why Oil Prices Keep Falling
Base on the world economic review and studies shows that there are basic reasons why oil prices in global aspect keep on falling. Less Demand, More Oil. The oil price is partly determined by actual supply and demand, and partly by expectation. Demand for energy is closely related to economic activity. Then, over the last year, demand for oil in places like Europe and Asia, suddenly began weakening ...
The price of oil is very hard to determined because the demand that the world requires is not been alike to the supply that the oil producing nations are providing, the price of oil is not stable as it can fluctuate, and either way the price fluctuates it will have a significant impact on the world as well as its economy.
What do u think are the main factors influencing oil prices in the current period?
The main and most vital factors that are influencing oil prices is the demand which is not being matched with its supply as well as the threat of the oil industry depleting
Many oil producing countries which are a part of Opec are less economical developed countries (LEDC), which indicates that oil trading is their greatest asset, an their main way of earning capital. Therefore the Middle East countries depend heavily on their oil industry. As according to the World Bank, the oil-rich Middle East has the world’s second slowest growing economy over the past ten years. Again the test and preferential of each person plays a vital role in influencing oil prices to rise. As demand became elastic which meant that there was no better substitution for oil, which lead to the prices to increase. Looking at the average income of a family who use their own transport, from this we can clearly see that there are more cars on roads, as well as more cars per family, which is mainly a ‘want’ not a ‘need’, this factor influences oil prices in the current period, mainly because the average income per family is increasing.
The supply of oil is a scarcity factor, which also plays a great role in people minds. This makes many leading oil companies to thick that oil will run out, leading for the company to purchase more oil and storing it to time when they can sell it for a huge profit. So therefore supply is another vital factor that is influencing oil prices
The Essay on Mother Country War Colonies World
From the Beginning Colonization began when we decided, as established, civilized nations that we were better than these so called 'lands of savages.' We claimed superior intelligence, culture, and divine right. However, as we began divvying up a world that didn't really belong to us, we were also unknowingly laying the groundwork for our own destruction. One of the biggest contributors to the ...
As the world is becoming more and more advance, there are more and more chances of a likely war between countries, which then has a knock on effect to the leading oil producing nations, as more oil will be needed for war arsenals. Or even to the most resent case of the Iraq war, in which many people think that oil was the main cause of the war. As the U.S.A were running out of oil, they planned a war on Iraq, with a cover up of Saddam Hussein having weapons of mass destruction. We can clearly see what the U.S.A is using their oil on by product, by looking at (graph 4).
and also how this is compared since 1950. in (graph 5).
If the price of oil raises significantly what impact will this have on the global economy?
The global economy would suffer, a lot as the rich oil nations will be making huge amount of economical profit that is if things go according their way. However in the resent time its very unlikely as the U.S.A and some of the top oil consuming countries just have took control of, one of the top oil producing country.
If the prise of oil raise than the most likely outcome would be leading toward war as the top oil consuming countries will not be able to meet the price to what they are demanding for. Another indication that will be given to the world if the oil price raise, is that oil is not far from running out, which will than lead on to the same action that has been happening in the past, i.e. large oil companies will by oil long.
Another possibility may be the that oil might become inelastic, due to significant raise in the oil prices, people with average income will need far more money to live a high class life style. So therefore the test and preference will slowly start to change.
If the price rise significantly then it would affect the global economy at different rates, but the leading oil consuming countries will face the largest effects. As we can see in (graph 6) global consumption of oil per capita that U.S.A and Canada consume the most gallons per day per capita.
The Essay on Oil Price Change
Since March 2008, the prices of petroleum products have increased incessantly and at an unprecedented scale, crossing all the previous milestones. This astronomical rise in petroleum prices have suddenly brought forth possibilities of a major economic crisis looming over world, one that may prove more crippling than the oil crisis of 1973. As the prices continue to soar and with dire future ...
Overall if the prices do set to increase then it would benefit the middle east more then any one as they will under power many of oil consuming countries, which may back fire by leading on to war. However as the oil price are controlled by Opec and as they are the largest oil producing organisation, they will slowly increase the price which will benefit them more for the foreseeable future.