Impact of Government Actions on the UK Market

This report discusses the impact of government actions on the UK market from 2010-2020. It focuses on the oil and gas industry, exploring changes in crude oil prices and economic determinants. It also examines the actions taken by the government and their effects on the market, including the impact of COVID-19 on oil prices.

Contemporary Business
Environment

Table of Contents
INTRODUCTION................................................................................................................................3
1. How have average Crude prices in UK changed over the period from 2010 to 2020? ..............3
2. What are the economic determinants of the changes outlined in your answer to Question 1? ...5
3. How has government action over the period 2010-2020 affected the UK market?.....................7
4. Analyse and predict the immediate and future effects of COVID-19 on the prices of Crude
Oil? ..................................................................................................................................................8
CONCLUSION....................................................................................................................................9
REFERENCES ..................................................................................................................................10

INTRODUCTION
Business environment has direct impact on the operations of the company which has to be
keenly analysed and managed. For this companies and the management has to analyse both the
internal environment as well as external environment so they can identify the prevailing opportunity
for the business along with various threats that has adverse impact on the operations of the
company. The factors which has direct impact on the business includes uncertainty in the future,
strategies of the management, various regulations and compliances, rapidly changing technology
and many more. Due to such factors the organisation need to emphasise on the changes taking place
on the basis of which they formulate various policies and strategies that can help them in
accomplishing their objectivities by managing their impact (Al-Khazali and Mirzaei, 2017). This
report is based on the oil and gas industry of UK that has been affected by the policies of the
government as well as due to the economic conditions prevailing within the economy. This industry
contributes a lot to the overall economic development in UK as it account for more than three-
quarters of the primary needs of UK. In this report the changes that have taken place within the
industry are discussed in past 10 years along with various economic determinants that brings
changes within the industry. In addition to this discussion is done over various actions that are taken
by the government in last ten years which affected the market of UK along with various impacts of
COVID pandemic on the prices of the crude oil.
1. How have average Crude prices in UK changed over the period from 2010 to 2020?
With each year passing on the role of oil has been increasing within the global economy
because of development taken place in the industries which has increased its demand. The oil
market consists of various speculators who bet on the prices that make them move up and down
affecting the production or consumption of oil. It has been analysed that gradually with the
economic development the demand for crude oil has increased in UK due to which its price has
increased over the period. But due to various changes that took place within the UK economy the
movement of prices of crude was consistent considering the average annual price of Brent crude in
July 2020 is 40.37 US dollar per barrel. In the year 2019 the prices of Brent crude oil on an average
was totalled at 64.36 US dollar per barrel which came down from 99 US dollar per barrel from the
year 2014 (Apergis and Apergis, 2020). But when prices of 2019 are compared with 2001 it still
reflects a significant increase in the prices. Brent crude is considered as light crude oil which is used
as benchmark price for oil throughout the world. It is considered light sweet oil as it originates in
North Sea and it contain low sulphur as well as a low density. The prices of crude oil is crucially
monitored and observed by the economists as well as the businesses because it has impact on

different stages of production process which has direct impact on the prices of consumer goods.
Crude price are highly fluctuating because they have significant economic impact and they are
determined on the basis of demand and supply along with various market sentiment. The prices of
crude oil are influenced by contemporary economic conditions and various future expectations for
the prices of oil by transportation and technology (De Oliveira and Samanez, 2017).
Figure 1 Brent crude oil price annually 1976-2020
The changes in the crude oil prices 2019 started to increase due to recovery of the global
economic crisis which increases the demand over crude oil. In addition to this OPEC cut down their
production by 2.2 million per barrels due to which the demand for Brent crude increased and
contributed to the relative volatility in the oil prices. From the year 2011 a new trend has been seen
in the Brent prices and WT I which was due to the inventory of WTI by the uses of US and Canada
(Ghosh and Kanjilal, 2016). The prices of crude oil has been decreasing which has positive impact
on the economy of UK as it will enable them to increase their economic activities by way of
reduction in cost of production, air transportation, agriculture etc. Apart from this if the reduction in
oil price is persistent then the economy of UK is expected to increase by 1% on an average from the
baseline between the year 2015 and 2020 along with increase in the employment opportunities for
90000 people. The increase or decrease in the crude oil prices is temporary as it is dependent upon
market sentiments and demands other industries that use crude oil as their raw material for
production.

2. What are the economic determinants of the changes outlined in your answer to Question 1?
For each and every industry it is important to determine various factors that affect the prices
of the products and services that they deal with. Crude oil has high demand throughout the globe
due to which the prices are highly fluctuating and are based upon different market sentiments along
with its supply and demand. It directly react to various variables such as economic news, overall
supply, demand of the consumers etc. With the increase in industrial production and economic
growth the demand for crude oil can be increased (Pavlova and Parhizgari, 2018). The concept of
supply and demand is direct determinant for crude oil as if the demand increases the price increases
and when the demand decreases the price goes down. But the price of oil are also dependent upon
oil futures market where various binding agreements are done to make purchases oil in future. The
dependency of crude oil prices on market is analysed above on the basis of which significant
changes has taken place in 10 years as the economic condition changes with economic cycle. The
crude oil prices thus depend on various variables like the economic conditions of market, customer
demand and the overall supplies of oil. OPEC which is an international oil producing cartel plays an
important role in determining the global oil supply along with monitoring the oil prices.
Crude oil or black gold is one of the most important commodities which affect the economic
development and growth of UK as it affects each and every economic sphere of national economy.
The price of crude oil changes with respect to policy changes, fluctuations in global markets. Since
2014, oil prices have witnessed a downward fall in its prices falling from $105 per barrel (Phan and
Narayan, 2020). Due to the COVID situation in market there has been a further sharp drop in the oil
prices due to subsequent lock downs in various economies which also lowered the demand in global
market. Following are the economic determinants that affect the prices of crude oil in UK which
also affect the economic policies in nation:
 Supply: OPEC is a group of 14 of the world's major oil exporting nations who play an

important role in determining the oil prices by boosting or reducing oil production. OPEC's
every move is watched by governments, oil companies, speculators, hedgers, policy
markers, consumers etc. as this determine the change in prices of oil in global market. The
political events in various nations affect the supply of oil globally like the Iranian
revolution, Persian Gulf wars, Asian financial crisis, economic global crisis of 2007-2008
has also led to fluctuations. The outbreak of COVID pandemic has also drastically impacted
the supply of oil in global market which also affect the economic progress in market along
with impacting the economy of UK (Ramyar and Kianfar, 2019).
 Demand: The demand in market affects the prices of crude oil in global market as string
economic growth and industrial production along with transportation, population growth,
seasonal changes etc. tend to boost demand of oil in market. It is important that these factors
are keenly observed so that the economic policies in nations can be changed which can help
in development of a nation. With the COVID situation in market there has been a decrease
in the overall demand of oil in market which has also lowered its prices and affected the
profits of OPEC nations.
 Derivatives and reports: Markets also affect the prices of crude oil through contracts of
derivatives in the form of futures and options to hedge the risk against changes in oil prices.
The reports containing details related with production figures, spare capacity, target pricing
and investments also affect the crude oil prices in market. International Energy Agency
(IEA) oil market report and weekly inventory data from both the American Petroleum
Institute (API) and the US Energy Information Administration (EIA) are keenly followed by
OPEC which affects the price of crude oil in global market (Rehman, 2018).
 Exchange value of dollar: Crude oil is traded globally in US dollars while consumers use
local currencies to buy petroleum products. When the US dollar depreciates against other
currencies, the countries which have appreciating currencies enjoy the cheap prices of oil
and vice versa. Thus a negative relationship is expected between the UD dollar exchange
rate and crude oil prices so that the the non-dollar countries can have availability of cheap
oil which can help in boosting their economies at low costs.
 Futures market: The price of oil depends on the oil futures market in which oil futures
contract is a binding agreement which allows a person to buy oil at a predetermined price at
a future date irrespective of the fluctuation in oil price in future. Future prices which are
above the spot prices can affect the oil producers this can which can withhold their oil so
that it can be sold later so that high profits can be earned. This can reduce the supply of oil
in market along with the sustainability affecting the prices.

 Speculators and brokers: The speculators and brokers also affect the prices of oil in market
as they predict the direction of movement of oil prices with no intention of buying the
product. The mere expectation that the oil demand will increase in future will drastically
increase the price of petrol in market.
 The bottom line: The price of crude oil in market are not merely affected by the demand,
supply and market sentiment towards the products but is also affected by the speculators
who play a major role in determining the price of oil in market by speculating the demand
and its impact on price in global market (Shin, Baek and Heo, 2018).
The above factors thus lead to the change in prices of oil in the global market which also
impacts on the economy development in UK and determines the growth of economy. These factors
need to be analysed efficiently by the economists so that high profits can be generated by making
accurate speculations so that profitability in market can be increased. The UK Oil and gas industry
needs to monitor the change in process in global market so that they can stock oil as per their
demand at appropriate prices so that highly efficient economic development can take place.
3. How has government action over the period 2010-2020 affected the UK market?
UK has an independent, developed and international trading economy which is affected by
the global economic situations which makes it important that these conditions are analysed by the
government so that effective policies can be formed. The economy has been drastically impacted by
the coronavirus pandemic and has led to a fall in GDP of nations across the world thereby also
affecting the crude oil prices in market. In UK the GDP fell by 20.4% in the month of April, 2020
which is the largest fall since 1997 which also affected the outputs from service, production and
construction sectors. UK is the sixth largest economy in the world but the growth in economy has
slowed down since the 2016 referendum on leaving the European Union (Brexit)which has further
contracted its economy in 2019 (Warburton and Jackson, 2020). Th e UK's GDP has only increased
by 1.4% in 2019, compared to 1.3% in 2018 which has further contracted with the coronavirus
pandemic outbreak. The government actions and decisions thus has a tremendous impact on the
economy of UK affecting the businesses and the oil prices in UK which affects its overall growth
and development. Since 2018, business investment has declined and the growth in real income has
weakened with the public debt rising above 85% of GDP. Government of UK is focusing on making
changes in the legislations and administration so that Brexit can successfully take place with a
comprehensive strategy of increasing productivity through increased investment in human and
physical capital. Various actions have been taken by the government of UK so that the economic
conditions in the country can be improved like investing in infrastructure with an investment of
£15bn in road network, £5.9 billion to support scientific excellence and £2.3bn programme of 1400

flood defence schemes. The government also increased investment in science and technology,
access to finance for businesses, increasing UK's exports and supporting inward investment, cutting
corporation tax, simplifying business regulations etc. All these actions of UK government has
helped in improving the economic condition of UK along with improving the growth and
development of the businesses in the economy. The decision of Brexit taken by UK government has
also affected its economy with the businesses finding different ways so that their profits are not
affected by the post-Brexit outcomes (Wegener, 2016). COVID has drastically impacted the
economic growth of UK which has affected the overall growth of UK economy and has impacted
both production and consumption in each of the sectors. It is important that efficient actions are
taken by UK government so that the economy can be revived which can help in making the
economy boost again that can help in the sustainability of UK in international market. The slowing
down of economy can also impact the prices of crude oil in UK which can lead to heavy debts on
the UK government so that the industries and businesses of the country can run efficiently.
4. Analyse and predict the immediate and future effects of COVID-19 on the prices of Crude Oil?
COVID pandemic has drastically affected the global economy with most economies facing
losses and slow down due to widespread lock-downs across nations so as to minimise the spread of
the virus among people. This has also affected the petroleum prices in worldwide which has lead to
the decrease in the demand and price of crude oil worldwide. On 31st December, 2019, WTI was
trading at US $61.06 and the price subsequently dropped to $23.36 on March 23, 2020 resulting
from the imbalance in the demand of oil worldwide. EIA forecasted Brent and WTI crude oil prices
to an average of $43 per barrel and $28 per barrel respectively in 2020 (Yıldırım, Erdoğan and
Çevik, 2018). Also due to the price war between Saudi Arabia and Russia clubbed with the COVID
pandemic has affected the forecasts in oil prices. Global level transportation ban has lead to a heavy
reduction in the aviation turbine fuel across the globe which has also impacted negatively on the
economy of nations across the globe. The global demand for oil has also decreased by 15-20 million
barrels per day. With the aggregated impact of COVID-19 and the price war has affected the Brent
crude price reaching to a low in 17 years. It is expected that there can be a further fall in the prices
of crude oil below $10 per barrel. This will affect the global economy and also can lead to the
producers paying the buyers so that they can lift the inventory from well-head. The global oil
industry is thus facing a severe crisis due to tremendous fall in the oil prices which requires that the
governments of various economies support the industry which can help in reviving the oil industry
and can also help in boosting the economic growth in the world again.
The future impacts of COVID-19 on the prices of crude oil can be that it can affect the
economies and may take time in the revival of the industry so that the prices can rise which can help

in the development of the industries across the globe. COVID has resulted in the closure of many
businesses and has also lead to ravel bans which will require a long period of time so that the
industry can revive and global economies can grow.
Illustration 1: Impact of COVID-19 in leading consumers of oil, 2020
Source: Impact of COVID-19 in leading consumers of oil .2020
CONCLUSION
From the above report it can be said that crude oil prices are affected by the economic
conditions of market across the globe which also affects the import and export of oil along with
affecting the development of the countries. Crude oil is the most important commodity of a country
on which the effective development of a country depends along with its economic stability in
market. It is essential that the crude oil prices are efficiently monitored by the government of
respective government so that the development of economies can take place along with improving
the GDP of a country. The changing natural factors also affect the prices of crude oil like the
COVID-19 pandemic has affected the oil supply and demand across the globe and also affected the
sustainability of businesses in market.

REFERENCES
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Online
Brent crude oil price annually 1976-2020 [online] Available through :
<https://www.statista.com/statistics/262860/uk-brent-crude-oil-price-changes-since-1976/>
Impact of COVID-19 in leading consumers of oil .2020. [online] Available through :
<https://energy.economictimes.indiatimes.com/energy-speak/will-the-oil-industry-survive-
covid-19-effects/4125>