Understanding Business and Economic Environment Question 2022

Running head: UNDERSTANDING BUSINESS AND ECONOMIC ENVIRONMENT
Understanding Business and Economic Environment
Name of the Student
Name of the University
Course ID

UNDERSTANDING BUSINESS AND ECONOMIC ENVIRONMENT1
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................3
Question a....................................................................................................................................3
Question b....................................................................................................................................6
Question 3........................................................................................................................................9
References......................................................................................................................................12

UNDERSTANDING BUSINESS AND ECONOMIC ENVIRONMENT2
Question 1
Figure 1: Trend in oil price in past ten years
(Source: Macrotrends.net. 2019)
The price of the crude oil is differential depending on its grade per barrel. There are many
factors that determine the price like API, specific gravity and its sulphur content and proximity to
refineries and tidewater. The above graph illustrates the price trends of crude oil from 2008 to
2018. Increase in demand and supply of oil and the position of global economy plays an
important role in the price trend of the crude oil. The increase in demand of oil in countries like
India and China hiked the price to US$147.27 on 11th JULY, 2008 (Caldara, Cavallo and
Iacoviello 2019). Increase in demand of crude oil in emerging market rose the oil price. In
contrast the deregulation of financial industry led to the Great Recession and financial crisis in
the world economy. Therefore, the price of the crude oil decreased significantly to US$30.28 per
barrel on 23rd December, 2008 due to the financial crisis of 2007-2008 (Chen et al. 2016). In

UNDERSTANDING BUSINESS AND ECONOMIC ENVIRONMENT3
2009, the price increased to US$82 per barrel. The political environment of Egypt deteriorated as
the activists protest against the rule of President Hosni Mubarak, poverty, government
corruption, unemployment. The political unrest in Egypt causes the crude oil price fell to $100
per barrel for the first time on 31st January, 2011. The price of the crude oil varied from $90 to
$120 for three and half years. Further, the price of crude oil dropped in middle of 2014, because
of less demand in the emerging countries and production of crude oil increase in USA. Multiple
factors caused the oil glut, the overabundance of the crude oil induced a steep downward trend in
the price of crude oil till February, 2016. The lowest growth of China’s economy and excess
production of 1 to 2 million crude oil by competing producers impacting the price of the crude
oil (Taghizadeh and Yoshino 2014). Thus the downward trend of oil price continued and hit
below $30 by 3rd February, 2016, decline of almost 75 percent since middle of 2014. As a result
of shifts in the demand cause the major price fluctuation of crude oil. The average closing price
of the crude oil was $64.90 in 2018.
Question 2
In the past ten years, oil price has undergone some dramatic fluctuations. In some years,
oil price increased significantly while in others oil price experienced a sharp downfall. Demand
and supply side factors play a crucial role in determining oil price.
Question a
Rationale for decline in oil price
In the twenty first century, oil price trend follows has been closely watched. Oil price has
increased significantly from 1999 to 2008. During this time, oil price increased from less than
$25 per barrel to above $160 per barrel. However, in 2008 oil price sharply declined to $53 per