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ECON 1020 Prices and Markets

   

Added on  2019-11-12

2 Pages558 Words170 Views
ECONOMICSThe price of oil like other commodities is determined by the demand supply forces. But oil isdifferent from other commodities owing to the geopolitical importance of the sameconsidering the importance of this resource in modern economy. As a result, the demandsupply factors are impacted by geopolitical considerations besides other factors such aseconomic growth, regional tensions coupled with alternate energy resources (Looney, 2012).As a result, crude oil tends to fluctuate quite often which can be also witnessed in thefollowing graph which captures the crude price over the last two decades.The grey regions represent the recessionary phases when the prices fell on account ofplummeting demand which was apparent during the 2008 global financial crisis. The rise inoil prices from 2002 onwards up till the onset of the global financial crisis may be attributedto the robust economic growth which was witnessed especially in the developing world suchas India and China aided by a stable global macroeconomic situation. Similar recovery wasobserved post 2010 also when the developing world led the recovery from the financial crisisand the demand of oil increased coupled with rising prices (Looney, 2012). However, from2014 onwards the oil prices have fallen sharply primarily on account of huge supplies ofshale oil and shale gas in the US coupled with a slowing economy of China. As a result,global demand has fallen while the global supply has increased due to new players such asUS, Canada entering into the fray coupled with removal of sanctions from Iran (Sheldrick,2017). Additionally, the fading clout of OPEC(oil cartel) in controlling the supply is also a

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