Managerial Economics (Oil Market Analysis)

This article discusses the impact of oil prices on different economic agents, shocks affecting demand and supply of oil, and projections for international oil prices using demand and supply framework. It covers the period between 1988 and 2018, highlighting different phases of oil prices. The article also explains how economic agents such as airlines, oil producing companies, solar panel producers, and consumers can be affected by the change in the international price of oil. Additionally, it discusses how shocks such as a worldwide economic recession, improved oil drilling technology, war in a major oil producing country, and greater environmental awareness about climate change can impact the demand or supply of oil. The article concludes with a suitable demand and supply framework, supplemented with research from economic sources, to make projections for the international price of oil.

Managerial Economics

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
Describe what happened to oil prices between 1988 and 2018, highlighting different phases..............3
TASK 2..........................................................................................................................................................4
Explain how each of the following economic agents can be affected by the change in the international
price of oil................................................................................................................................................4
TASK 3..........................................................................................................................................................5
Explain how each of the following shocks can impact the demand or supply of oil................................5
TASK 4..........................................................................................................................................................7
Use a suitable demand and supply framework, supplemented with research from economic sources..7
TASK 5........................................................................................................................................................10
Use a suitable demand and supply analysis to make your projections for the international price of oil.
...............................................................................................................................................................10
CONCLUSION.............................................................................................................................................11
REFERENCES..............................................................................................................................................12

INTRODUCTION
Managerial Economics is an economics discipline. Incorporate economic thoughts and ideas
for the study and solutions of business entity and industry management challenges. The
application of economic processes of thinking to evaluate industry trends” issues in international
business are what management economists is all about. Brent oil is currently trading at 76.29
dollars a barrel, up from 73.16 dollars the prior month. The price has increased by 76.43 percent
in the last year (Staples, Malone and Sirrine, 2021). Brent fuel is also referred as London Brent,
North Sea Oil, Brent Blend, and Brent gasoline, and it is derived from of the North Sea. It's a
lighter petroleum that's somewhat lighter than WTI and sweet due to its low sulphur level,
making it excellent for processing gasoline and petrol. The EIA evaluates the many factors that
might impact crude oil prices, including actual economic factors and also trade and global
economy elements. We examine probable links between each component and crude oil prices by
describing the seven major factors that could affect energy markets.
TASK 1
Describe what happened to oil prices between 1988 and 2018, highlighting different phases.
Brent oil is currently trading at 76.29 dollars a barrel, up from 73.16 dollars the prior
month. The price has risen by 76.43 percent in the last year. Brent crude is also referred as
London Brent, North Sea Oil, Brent Blend, and Brent petroleum, and it is derived from the North
Sea. It's a light petroleum that's somewhat lighter than WTI and pleasant owing to its poor
sulphur level, making it excellent for processing gasoline and petrol.
Brent crude oil accounts for nearly half of the worldwide crude oil supplies. Brent blend
crude is used as a reference for oil transactions all over the world. The ICE stock exchange is
where it is exchanged digitally. OPEC's tentative average yearly crude prices for 2021 are 62.031
dollars per barrel. This is a result of the long year's 41.47 US dollars that was just marginally
greater than the standard yearly price mostly during 2016 oil crisis. As during corona virus
pandemic, a substantial drop in vehicle fuel consumption and weaker future situation resulted in
a price drop in 2020. OPEC refers for Oil companies, and Algeria and the United Arab Emirates
are members as of June 2021. The goal of the Organization of Petroleum Exporting Countries
(OPEC) is to manage the oil policy of its membership (Pamungkas, 2020). It was created in

Baghdad, Iraq, in 1960. The cost of the so-called OPEC (Reference) bundle determines the
OPEC crude oil price. This bundle is comprised of the selling cost of the oil refining mixes
provided by OPEC countries.
TASK 2
Explain how each of the following economic agents can be affected by the change in the
international price of oil
Increases in oil prices are considered to raise prices and slow economic development. Oil
prices have a significant effect on the value of items manufactured using gasoline services in
terms of inflationary. Fuel prices, as previously said, have an indirect impact on expenditures
including such transport, production, and warming.
Airlines: Air travel is finally becoming more affordable thanks to a nearly week though drop in
oil costs, but you might also not realize until you fly a reduced airline. According to data issued
this year by the Bureau of Labor Statistics, median airline ticket costs fell by 5.6 percent a year
earlier, the biggest single-month reduction in over 2 decades. This is owing in big element to the
recent oil price drop, that reached inter depressions on Friday. The cost of jet fuel, which is the
airlines' largest administrative expenditure, has also decreased. Falling oil prices are clearly
brilliant news for airlines, which now have more money on hand. Nevertheless, to choose what
they want to do with the infusion of cash does not necessarily equate to customer benefits
(Remondino, 2020).
Oil producing companies: The pricing of other manufacturing process in the United States is
affected by the presence of oil. The price of petrol or airline fuel, for illustration, is directly
related to the purposes of moving products and passengers. Decreased transportation costs and
travel expenses result from lower gasoline prices. Falling oil prices boost the manufacturing base
while many industrial chemicals are processed from oil. Decrease in the cost of crude were
widely seen as beneficial until the recovery in Crude oil production since they decreased the cost
of buying oil and transport and distribution expenses.
Solar panel producers: Solar electricity's economics are influenced by public policies on the
one side, and the pricing of its substitutes, notably renewable energy, on the other. We contrasted
the stock markets of renewable and other firms with world oil prices to see how dependent they

are on the cost of energy sources. While energy prices are more directly related to power costs,
oil has the benefit of becoming an internationally global currency that accurately represents the
price fluctuations of other coal and oil.
Consumers: Rises in oil prices are considered to raise inflation and slow economic development.
The rise within those expenses may have an impact on the prices of a wide range of products and
services, since manufacturers may pass on manufacturing taxes and regulations (Chen and et.al,
2021).
TASK 3
Explain how each of the following shocks can impact the demand or supply of oil
A worldwide economic recession: The United States is expected to generate 11.3 million
barrels of oil each day in 2020. Saudi Arabia supplied around 9.3 million barrels each day,
whereas Russia generated around 9.9 million. Almost no region offers almost half the amount of
oil as the top three. With 4.2 million barrels each day, Canada is a distant third. One significant
conclusion is that volatility fell soon after the financial meltdown as a result of the fall in the
diversification of market activities caused by a drop in projected crude oil demand. OPEC
predicted that crude oil consumption in 2009 will fall by 1.4 million barrels per day (bpd) to 1.7
million bpd, opposed to 3.1 million bpd in 2008, resulting in a distorted global supply-demand
balance. Hundreds of millions of people make up the consumer sector, and while each of us has
great choices to companies requiring, we together have a lot. The manufacturing side of things is
a little more difficult. In recent years, the United States has become the greatest oil production,
surpassing Saudi Arabia that most people believe is the leading producer. (1) In 2013, the United
States overtook Saudi Arabia as the world's leading oil production. Because of shale fracturing in
Texas and North Dakota, this is the case. (2) Nonetheless, owing to assaults on Saudi Arabia's oil
fields, that interrupted consumption, Saudi Arabia's oil output was reduced per year compared
with the normal norms in 2019 (Holzmayer and Schmidt, 2020).
Improved oil drilling technology: Drilling is the most common method for obtaining
gasoline from subterranean rocks. Drilling technology advancements that reduce exploration risk
and maximize the chances of failure in discovering and retrieving oil and gas will gain the US
directly in terms of increased oil reserves, sustainable energy prices, and strengthened global

strength in the refining and related sectors, that are becoming progressively international in
scope. The majority of the world largest crude oil production are in areas prone to political unrest
or have experienced oil supply interruptions as a result of direct developments. Numerous big
exchange rate volatility have came at the same time as supply interruptions based on political
situations.Oil exploration and drilling have the potential to disrupt land and marine
environments. Fish and marine animals may be harmed by seismic methods used to search for oil
beneath the ocean's surface. Digging an oil well on land sometimes necessitates the removal of
plants. Technology that enhances the speed of underground mining operations, on the other hand,
has a low impact on the community. Satellites, location - based services, remotely sensed
equipment, and 3-D and 4-D seismic technology allow oil deposits to be discovered with fewer
exploration wells. Slimhole drilling equipment that are transportable and shorter minimise the
amount of the region that boring operations influence (Rienda, Claver and Andreu, 2020).
War in a major oil producing country: The United States is expected to generate 11.3
million barrels of oil per day in 2020. Saudi Arabia supplied around 9.3 million barrels each day,
whereas Russia generated around 9.9 million. No other country produces even half the amount of
oil as the top three. With 4.2 million barrels each day, Canada is a distant third. All other things
considered, basic supply and demand theory dictates that even when a product is manufactured,
the further inexpensively this should market. It's a mutual association. The explanation for this is
that it has become more cost effective (or at least not less cost effective) to create more. When
someone invented a well stimulating technology that could quadruple an oil field's production for
a minimal extra cost, prices would fall assuming consumption remained constant. In recent years,
nothing comparable has occurred. North American oil output is at an all-time high, with facilities
in North Dakota and Alberta producing more than ever.
Greater environmental awareness about climate change: The worldwide price of oil is
influenced by a number of variables, the most important of which are supply and demand
activity. With both the worldwide attention on emissions reduction, the world's energy
company's focus has turned to the carbon content of hydrocarbon power sources. A reference
indication is used to reflect mitigating climate change efforts. Coal concentration is selected as a
potential measure since it is sourced from all segments of the country and covers all fuel
environmental management impacts, both brief & medium range, and there are statistics on coal

time intervals that span the timeframe in question. Crude oil prices are influenced by supply and
demand on a worldwide scale. Among the most important variables influencing petroleum
market size, and hence crude oil consumption, is economic development. Energy consumption
rises as incomes rise, particularly for moving products and resources from production to
consumption (Xiao and et.al, 2021).
TASK 4
Use a suitable demand and supply framework, supplemented with research from economic
sources
The price of oil could have increased between 2004 and 2008: Oil prices surged from below
$100 in the first half of 2008, owing to concerns about supplies in many key producing states.
During the first session on Wednesday, January 2, 2008, fuel prices temporarily surpassed $100
per barrel. Worries over supply and rising prices pushed the price of crude to a historic level of
further than $135 per barrel on May 22, 2008. Crude oil prices surged to fresh highs in New
York trade for the second time this month. The preceding week, the price of crude was nearly to
$134 (133.82). Interest rates have been boosted by concerns over global production shortfalls.

Although there are signs that the shortfalls may grow even worse. The spot price of West Texas
Medium (WTI) crude oil rose from $122 per barrel on June 4, 2008, to $145 per barrel on July 3,
2008, and now to $147 per barrel on July 3, 2008. By August 5, the price had dropped below
$120 per barrel. Have since, the cost of crude has been steadily declining, approaching $100. By
September 2008, the price of oil had dropped below $110. Even most of OPEC's most hawkish
officials are speculating that $100 per barrel may be the 'correct' price. WTI prices, that reached
$72 per barrel in 2007, were expected to reach $119 in 2008 and $124 in 2009. Oil prices were
expected to soar as high as $200 per barrel due to decreasing global supply. The international
market's continued economic growth has an impact on anything from shipping to food
production (Button, 2020). Some legislators in the United States are putting the problems on
major oil firms, but energy experts say national authorities must face the reality of rising demand
and finite production. Increasing populations in China, India, and other emerging economies are
driving production of oil, which is required for manufacturing and transportation.
At the same time, those countries' rising middle classes are driving up need for vehicles, which
uses more gasoline. According to several industry specialists, oil may reach $150 or even $200
per barrel in the next decade, ushering in a period of fuel restriction and a severe financial
meltdown (Cheng and Cheung, 2021). According to the EIA, forecasts for improving world oil
characteristics over the following 18 months indicated to a softening of the load balancing and
price weakening in the short term as of August 2008. Slower U.S. and worldwide oil demand
increase, as well as greater petroleum liquids manufacturing capability in the Petroleum
exporting Countries (OPEC).

The price of oil could have fallen in 2008: When the economic recession appears to be worse
or lengthier than predicted, and if increased wages lead to a reduction energy demands for OPEC
crude than presently forecast, negative rising prices will grow. Any downturn in oil prices may
potentially be minor or short-lived, particularly should headline inflation surpasses current
estimates or if oil output capacities development plans in both OPEC and non-OPEC countries
turn out to be less ambitious than anticipated. Share prices are still influenced by supply
uncertainties in Iraq, Nigeria, and Iran, and also storm concerns in the coming years (ASTUTI
and et.al, 2020).
Furthermore, OPEC production behaviour that leads to voluntarily oil output aimed at
maintaining tight stocks will minimise negative market pressure. Oil prices finished at a fresh
14-month low on October 16, 2008, at much less than $70 per barrel, just under half their July
2008 historic peak. For maybe the first occasion since April 2008, oil prices went below $100
per barrel on Tuesday, September 9, 2008. OPEC approved to a 500,000 barrel per day output
cut just before a conference in Vienna. Leaders from OPEC's 13 member states agreed to a daily
production limit of 28.8 million barrels after a lengthy meeting that lasted till early Wednesday.

TASK 5
Use a suitable demand and supply analysis to make your projections for the international price of
oil.
Price changes in the oil market are unavoidable. Multiple causes in the past attributed to
swings that were out of the suppliers', shareholders', and observers' predictions. Demand-supply
dynamics, political developments, and OPEC policy interventions are only a few of the major
variables that have contributed to substantial fluctuation in oil prices. Significant price swings
have a significant influence on oil-exporting countries. The increase in price has a detrimental
effect on petroleum countries while assisting exporter countries in their economic progress. On
the other hand, a drop in oil prices benefits the financial prosperity of international trade while
harming the industrial prosperity of exporting countries (Benuyenah, 2021).
In a sizable proportion of petroleum nations, a persistent price reduction may encourage
investment and relieve economic and budgetary concerns. On the other side, a rapid drop in oil
prices hurts petroleum producing economies' exports, trade balance, and public debt. The drop in
oil prices has a major influence on investor mood, which has a detrimental effect on exploration
and development. Older initiatives are frequently abandoned, while new developments are
frequently postponed. Falling oil prices, on the other hand, enable importing countries to
implement changes, reduce oil expenditures, and gradually charge carbon pricing.
The oil world is growing, and there are indicators that it is changing. Concerns are
growing. Concerns about the world climate have been pervading both legislative debate and
business activity for some time. Policy guidelines have been tightened as a result of domestic and
international lobbying priorities, whereas technology in power generation has accelerated.
However, the oil sector has been advancing technologically. Its capability the quantity and
profitability of traditional oil resources have both increased. Their productivity has been
increasing, and the fast expanding shale oil sector has helped to supplement it (Naserinezhad and
et.al, 2020).
As per the analysis present price Brent crude oil's actual revenue is going to climb to
$66/b.10 by 2025, according to the EIA. Brent prices are expected to reach $89 per barrel by
2030, owing to increased global demand. Costs are expected to reach $132/b by 2040. Around

then, the low-cost oil resources will have been depleted, making oil extraction more costly. As
per the EIA's Annual Energy Outlook, fuel prices will reach $185 per barrel by 2050. The EIA
predicts a flattening of petroleum consumption as companies shift to crude oil and energy
production. It also predicts that the industry expands at a rate of about 2% per year, whereas
power consumption falls by 0.4 percent per year. 11 Other potential situations are also predicted
by the EIA. There are scenarios that may push oil prices above $200 per barrel, despite the fact
that it appears implausible right now (Guo, Al Ariss and Brewster, 2020). Whereas if process of
purchasing oil falls and it drives out alternative fuels, the EIA predicts Brent oil prices of $185
per barrel in 2050, but market situation might force the market much further. Oil prices reached a
record high of about $133 per barrel in July 2008. In December, they fell to approximately $40/b
before rebounding to $123/b in April 2011. 2 Originally, the Organisation for Cooperation And
development ( oecd (OECD) predicted that Brent oil might reach $270 per barrel. 12 Its forecast
was predicated on rapidly rising consumption from China and other asian economies (Brahmana,
Loh and Kontesa, 2020).
CONCLUSION
As per the above report it has been concluded that all oil trades are settled in US dollars. The
majority of oil-exporting economies have their currencies pegged to the US dollar. As a result, a
25% increase in the dollar cancels out a 25% reduction in oil prices. The US dollar remains
strong due to global economic uncertainties. The availability of shale oil and renewables like
ethanol in the United States has grown. They gradually expanded supply, keeping prices in check
enough yet to cover research expenditures. Some shale oil companies improved their extraction
efficiency. They devised methods to keep reservoirs open, avoiding the expense of sealing them.
This tunnel started in 2015 and has had an impact on supplies since then.

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