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Prices and Markets Demand : Assignment

   

Added on  2021-01-02

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Prices and Markets

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1Reasons for price fluctuations................................................................................................1Welfare Implications..............................................................................................................3CONCLUSION................................................................................................................................3REFERENCES................................................................................................................................4

INTRODUCTIONCrude oil is a non-renewable resource which occurs naturally. It is known as unrefinedpetroleum product i.e. composed of hydrocarbon deposits and all other organic materials.Basically, it is located underground and after refining, it is used to produce some usable productssuch as gasoline. Oil prices usually rise in summer during vacation driving times. In the presentscenario, crude oil prices are fluctuating day by day. There is a huge impact on the cost ofgasoline, home heating oil, manufacturing and electric power generation during high crude oilprices. Transportation requires 96% oil, 43% of industrial product and 21% of commercial andresidential as well as only 3% of electric power. Higher oil price is increasing the inflation likecost of everything is getting expensive especially food. This report includes various aspects ofexchange process, factors that can affect government for crude oil price fluctuations marketoutcomes and the welfare implications of exchange outcome and to find if there is any scope forgovernment intervention.Reasons for price fluctuationsCrude oil has an important link to the global growth of world’s economy. There is a hugedemand and growth in energy intensive industries. If there is demand of oil then it will raise thegrowth in electricity, transportation, manufacturing and shipping. If there is high growth then itwill lead to directly high demand. The oil prices were decreasing because they were largelypassed on to consumers in developed countries, there has been less pass through rest of theWorld (What’s behind the drop in oil prices, 2018). So, because of this; government have takenadvantage of reduced subsidies on consumption of fuel and it strengthened their fuelconsumption. In 1985- 1986, there was fall in oil prices was due to supply driven and in 2008-2009 the fall of oil prices was because of collapse in demand. Their was slow growth inemerging market. Especially because of China, it led to fall in prices of commodity. There wasfall in oil prices which was majorly slower than food and metals.Fiscal policies and monetary policy: The policies of many countries like European Union,US, Japan and China causes the flow of capital, demand for oil and investment. There is directinfluence on the price of crude oil in global market. Organisation of Petroleum Exporting Countries (OPEC) is the main reason behind the oilprice fluctuations. 40% supply of oil of world is in the control of OPEC. The production level isset by OPEC to meet global demand and it can influence the price by increasing and decreasing1

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