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HI5003 -Australian Oil Trade | Economics for Business

   

Added on  2020-03-04

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Running Head: Australian Oil TradeThe Supply and Demand of Oil in AustraliaStudent’s NameInstitutional AffiliationCourse/NumberInstructor NameDue Date
HI5003 -Australian Oil Trade | Economics for Business_1

Australian Oil Trade2The Supply and Demand of Oil in AustraliaIntroductionOil is an important resource to the Australian economy just like in any other world economy. Oil is not produced in many economies; thus trading occurs because all the nations in the world are in continuous demand for oil. The oil producing economies export their surplus to the non-producing ones. Some oil producing nations also may fail to have the potential to produce oil that would meet the demand for the country. This means that there is deficiency of supply in these nations. Thus, an oil producer may also be importing from other producers. Australia is one of the economies that produces and imports oil at the same time (Markus, 2014).The demand for oil determines the quantity of oil that is to be imported over the domestic produced quantity (Matsushita & Schoenbaum, 2016). The oil supply and demand determines theprice at which oil is sold. According to Aip.com.au (2013), the Australian major source of oil is Singapore. For some years, the Australian economy have benefited much from the low price on oil. There has been an oversupply and a deficient demand that has been contributed by oligopolistic competition among the oil producers. However, the low oil price has impacted the Australian oil industry as will be represented in the analysis. The analysis of demand and supply will help the business investors in their pricing decisions. This paper will also help the government on the negative impacts of over relying on cheap oil importation.AnalysisFrydenberg (2016) noted that there is lost control in the oil prices and thus the only option is to boost the productivity on the oil manufacturing companies in Australia. This was in his article “Oil industry slump means Australia has to boost productivity” where he pointed out of the sustained pressure in the gas and oil industry. The oil prices had reduced by 78.57% as from 2008 to 2016. In 2008, a barrel of oil was sold at $140 whereas in 2016 this price had declined to $30. Given that manufacturing cost in Australia are way high, it became more expensive to produce oil and thus a shift to over dependence on importation (Vivoda, 2014). The low oil price had the greatest impact on the oil producing nations especially those dependent on oil as their primary source of income (Letts, 2015). Such economies include Saudi Arabia, Russia, Nigeria, etc. The price have gone down to extreme level and this has been for a long timenow and this has raised doubt of whether the oil prices will come to recover in the future
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Australian Oil Trade3(Koremans, 2015). This doubt has made it more difficult for the oil producing firms to get capitalto facilitate their survival as the banks are not willing to lend to them as there is high risk of default if the price fails to recover (the price may continue falling).Fig: Falling self-sufficiency in Australian oil productionSource: Qer.com.au (2013)Self-sufficiency is falling in Australia as the production is being neglected to avoid rising production costs. The projected decline is 83 million barrels as at 2030 compared to 183 million barrels in 2008. The low price has slowed down the shifting of consumers to renewable sources as there is much benefit buying at a lower price. Fig: rising Australian oil Consumption but a declining productionSource: Vivoda (2012)
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