Economics Assignment: Oil Price Analysis - Semester 1, University X

This economics assignment report analyzes the factors responsible for the decline in oil prices, focusing on the supply and demand mismatch in the global market. The report highlights increased oil production in countries like the United States, Canada, and Iraq, coupled with reduced demand from developed nations and China. The report identifies the beneficiaries of the reduced oil price, including vehicle drivers, consumers, and oil-importing nations. Furthermore, the report recommends strategies for stabilizing oil prices, such as boosting oil demand through wage reforms and OPEC restricting supply. The report references relevant academic sources to support its findings and recommendations.

Running Head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author note

1ECONOMICS ASSIGNMENT
Table of Contents
Factors responsible for drop in oil price..........................................................................................2
Winners of the reduction in oil price...............................................................................................3
Recommendation for stabilizing oil price........................................................................................3
References........................................................................................................................................4

2ECONOMICS ASSIGNMENT
Factors responsible for drop in oil price
In the world market, the demand supply mismatch is one of the major factors responsible
for a decline in oil price. On the supply side, oil production has increased rapidly in many
countries. In United State for example production has almost doubled. Oil production and export
from countries like Canada and Iraq have also constituted an increasing trend. OPEC has marked
a deviation from its usual strategy of constraining supply. Russia is also successful in
maintaining oil production to a standard level (Baumeister and Kilian 2016). As against the
growing production of oil, the demand from European countries and other developed nations
have weakened. China’s growth slow-down and use of energy efficient vehicles further reduces
world demand of oil. The excess of supply over its demand results in a major decline in world oil
price.
Figure 1: Supply-demand mismatch and effect on price
(Source: as created by Author)

3ECONOMICS ASSIGNMENT
Winners of the reduction in oil price
The benefitted groups from the decline in oil price are vehicle drivers who need to pay a
low price for petrol. Prices of diesel, natural gas and heating oil have also declined sharply.
Because of a lower price of petrol, diesel and related products the transport and manufacturing
cost have declined making consumers’ goods cheaper (Griffin and Teece 2016). The oil
importing nations also benefitted as they need to spend less to meet their energy demand.
Recommendation for stabilizing oil price
The stabilization of oil price need a balance state of supply and demand. Measures should
be taken to increase oil demand. Low wages to consumers is a factor restricting demand. Hence,
reforms should be taken to raise wages. The oil producing countries need to restrict their supply.
OPEC needs to back to its earlier strategy of artificially reducing their oil supply. The supply
restricting along with a boost in demand helps to stabilize price.

4ECONOMICS ASSIGNMENT
References
Baumeister, C. and Kilian, L., 2016. Understanding the Decline in the Price of Oil since June
2014. Journal of the Association of Environmental and Resource Economists, 3(1), pp.131-158.
Griffin, J.M. and Teece, D.J., 2016. OPEC behaviour and world oil prices. Routledge.