Economic Analysis: Crude Oil Price Trends in the UK (2010-2020)

This report provides a comprehensive analysis of crude oil price trends in the UK from 2010 to 2020. It begins with an introduction to the importance of crude oil in various industries and the UK's oil and gas sector. The main body of the report examines the fluctuations in crude oil prices over the past decade, highlighting key trends and periods of significant price changes. It then delves into the economic determinants influencing these price variations, including supply and demand dynamics, production levels, consumption patterns, the role of speculators, future markets, alternative energy sources, currency strength, and other economic factors. The report also assesses the impact of government actions, such as the Brexit decision, on the UK oil market. Finally, it explores the immediate and future effects of the COVID-19 pandemic on crude oil prices, considering both short-term disruptions and long-term implications for the industry. The conclusion summarizes the key findings and insights from the analysis.

INTERNAL AND
EXTERNAL BUSINESS
ENVIRONMENT

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY ..................................................................................................................................3
1. Trend of crude oil prices in UK over past decade – 2010 to 2020..........................................3
2. Economic determinants of the changes in crude oil prices. ....................................................5
3. Impact of government action on the UK market over the period 2010-2020..........................8
4. Immediate and future effects of COVID-19 on the crude oil prices........................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Crude oil is the integral and base component of many industries like transportation,
chemicals and petroleum etc. there are around 160 different types of crude oil traded globally. It
is also called black gold and is a type of liquid petroleum that is found accumulated in various
porous rock formation in Earth's crust and extracted through burning. UK Oil and Gas industry
is very important industry as crude oil accounts for 97% of the fuel for transportation sectors.
Pharmaceuticals, plastics, cosmetics and domestic appliances uses major feedstock of oil and
gas. In the further report the movement of crude oil price over the period from 2010 to 2020 is to
be analysed. The economic determinant of the above change in prices of crude oil. Light will
also be thrown on the affect of government action on the UK market over the period 2010 to
2020 and lastly the immediate and future effects of COVID-19 on the prices of crude oil.
MAIN BODY
1. Trend of crude oil prices in UK over past decade – 2010 to 2020.
Crude oil is an important and inevitable source of energy all over the world. Various
sectors heavily depend on crude oil like industrial, domestic, transportation etc. The prices of
crude oil in past 10 years have shown a diversified trend in UK. Crude oil prices impacts
economy at a greater scale has it increases inflation and leads to reduction in economic growth.
UK is the largest producer of oil and ranks the second largest for natural gas in European union.
Fall in the prices of crude oil may benefit the businesses but negatively impacts oil and gas
industry.
As UK economy has shown various trends in the last decades, in 2010 the prices of crude
oil was £62.21 per barrel and in 2011 it showed a drastic increase in the prices from £62.21 to
£87.10 US$ and also remained same in 2012. This increase in crude oil prices decrease the
overall economic activity of UK as production costs increases for businesses. But the oil and gas
industry like refined petroleum manufacturing, oil-intensive manufacturing, are positively
impacted by increase in prices as the price of the key inputs rises.
After 2012 the prices showed a downfall trend till 2016. The prices were £84.99 ,£77.48 ,
£40.96, £34.19 per barrel in 2013, 2014, 2015 and 2016 respectively. From June 2014 till
January 2016 the crude oil prices showed a very steep and drastic fall. This price fall was one of
the biggest in history. The downfall in crude oil price increased UK overall economic activity

level and also boosted investment and employment in that phase. In this phase the GDP of UK
increased by 1.2% in 2015 on average, 1.4% in 2016 and around 120,000 people were given
employment in the same year. As the economic activity of UK was growing, revenues of the
government in terms of tax also increased. In this phase there was a rise in real household
incomes which increased the spending by the customers.
From February 2016 the prices again took a rise in 2017 and 2018 the prices were £42.47 and
£55.85 per barrel respective. The inflation rate in this phase increases due to rise in crude oil
prices as decrease in GDP and aggregate demand will exert downward pressure on prices, this is
the offset by the cost incurred that translates into higher consumer prices. Again in 2019 the
prices fall to £50.38 and in 2020 gone to £31.60 per barrel. The oil prices have fallen so far in
2020 that the price of oil is selling for a lower price than the cost for the producers. This has
damaged many oil firms who have borrowed to invest in new oil fields. This fall in price has also
reduced profitability for alternative energy sources (Brent crude oil price annually 1976-2020).

In this graph it can be easily seen that 2010 to 2020, initially there was an increase in the
prices of the crude oil in UK and then gradually shows a downfall trend. The red line in the
graph shows the price trend and the black line indicates the downfall in the prices of crude oil.
This trend of falling price creates a problem of bad debts for the economy. In 2020 oil prices
have fallen so far that the selling price of crude oil is lower than the price at which it was
purchased. Due to this there was much damage caused to the borrowers who invested in the new
oil fields.
2. Economic determinants of the changes in crude oil prices.
Crude oil is also known as black gold and changes in price of this commodity can affect the
economic system of the economy. There are various economic determinants of the change in
price of crude oil (Miao. and et.al., 2017).
Demand and Supply
Research shows that demand and supply of the crude oil tends to change the price of the
crude oil. Demand and supply of the crude oil is the major determinant of their price. The law of
demand and supply tends to affect the prices of the crude oil. As demand of the oil increases the
price tends to shoot up and if the demand falls the price also show a downfall. And same is the

case with supply, if supply increases in UK, the prices of the crude oil tend to fall and in this way
the movement of price occurs. High prices tends to make alternative fuels more competitive and
gain reducing the demand for the crude oil. Increased crude oil demand leads to rise its price
which ultimately adds on to the UK's economic growth. The price elasticity of crude oil demand
tends to be inelastic for some businesses (Kim, 2018).
Production
Production is an important factor while determining the price of the crude oil. Production
and extraction of the crude oil was tougher back in days when the technology was not so
advanced. And there were limited reservoirs discovered then. So the prices of the oil used to be
high as the production and producers were in less quantity and demand was in high quantities as
it is non-renewable source, the cost incurred was also high (Dey, Edwards. and Das, 2020). But
will the discoveries of new reservoirs and producers there has been increase in production and
supply of crude oil. With the advancement of technology the cost incurred is also less. Therefore,
in last decade the prices of crude oil in UK has fallen down. The production and extraction of
crude oil in UK is affected by its political factors.
Consumption
The major consumption of crude oil is done by transportation sector, electric power
sector, energy generation sector etc. UK, Denmark, Germany and Luxembourg constitutes the
50% of the world demand. Crude oil is also used as a raw material for manufacturing products
like plastics, industrial chemicals and asphalt etc. As the consumers of the oil in UK has
increased therefore it's price also changes to adjust the consumption level. As the consumption
by UK is increasing the technological costs, exploration costs and refining costs is also
increasing therefore which leads to change in crude oil prices.
Speculators and brokers
Speculators and brokers play an important role in affecting the prices of the crude oil.
Speculators are someone who guesses the price direction and has no intention to buy.
Speculators bid prices for crude oil and tend to create unsustainable price changes. These
speculators hoard large stocks of crude oil which reduces supply and give rise to artificial
demand. Therefore, speculation is the key factor price movements of crude oil. In a study it was
revealed that crude oil stocks holding and future prices do show a positive correlation and thus
also influence prices on the spot market.

Future market
Some dealers try to indulge in future contract, which is a binding agreement that gives
one the right to purchase the oil by the barrel at the pre decided price, date. The client does this
to avoid crude oil fluctuation effect on them. Increase prices in future can influence producers to
withhold the crude oil and to sell when prices tend to increase to earn more profits which
substantially affects the price changes.
Alternate energy sources
As there are renewable sources of energy is also available therefore the dependency on
crude oil is diminishing. If the crude oil price rises in UK, people can shift to other sources of
energy. But where it is used as a primary source like transportation sector and there is no direct
substitutes of the crude oil therefore when the price of the oil increases, the demand for the other
energy source does not always rise (Ferrer, and et.al., 2018).
Strength of currency and exchange rate.
Keeping the other factors constant the value of pounds has a great impact on the prices
of crude oil. The depreciation of pounds versus the appreciation of other currencies will
ultimately decrease the cost of buying the pounds. Due to this reason the demand for crude oil
increases in other countries and consequently increasing the price of it.
Other Economic factors
Population of UK also impacts the crude oil prices as increase in population will lead to
greater consumption of the crude oil. Import and export by UK also determines the price level of
crude oil (Jeris. and Nath, 2020). If UK exports more as there increase in other countries demand
then the price at which UK exports will be higher and will get an advantage but if UK imports
the price of the crude oil tends to rise in the country as they have deficiency of the energy.
Development in the country
If in any country there is great amount of industrialization, then those countries need
more crude oil than the countries where there is less industrialization. So economic growth and
industrialization in the country has a parallel impact on the demand and price of the crude oil.
Developing country represents the biggest growth in crude oil demand and increased price.
OPEC
This organization of petroleum exporting countries is an intergovernmental organization.
The objective of this organization is to coordinate and unify petroleum policies in order to secure

fair and stable prices on petroleum products among the members of the organization. OPEC
accounts for about 42% of global oil production because of which they have influence on global
crude oil prices. Conflicts and civil disorders impacts the prices of the crude oil as it leads to
unreliable and extended interruptions in supply (Ftiti. and et.al., 2016).
3. Impact of government action on the UK market over the period 2010-2020
In the time period of 2010 to 2020, the UK’s government action has highly affected the
market environment in both manners, positively and negatively. For example; in year 2016, the
UK’s government has taken decision of Brexit. That was basically decision of exit from the
European union (EU). In this situation, this action of local government was impacted to the oil
and gas industry in both manners (Islam and et.al., 2020). After Brexit, now businesses and
companies which are involved in the oil and gas industry are not capable to conduct their import
and export activities in those countries which are still the members of EU. Basically, when the
government was taken decision of Brexit, then existing top-level management and administration
was not happy with the UK government’s this decision. After these all matters, many existing
countries of European Union was taken decision about not conduct any deal with the businesses
and organization of the United Kingdom. That’s why currently businesses of oil and gas industry
of UK are required to put their huge efforts for exporting and importing their products and
services in other member countries of European Union. Many other industries and sectors of this
country also has affected by the government’s this Brexit decision. However, according to some
businesses of this country, this action of government has given them chance to boost their
performance and productivity in market place.
On the other side, this existing year 2020 is also not much favourable for the different
industries and sectors of the United Kingdom. In this year, all businesses, organization or
ventures has badly affected through the coronavirus pandemic. Basically, when this pandemic
came in the UK, then local government has taken action towards implementing lock down in
across the country. That’s why people were not able to visit market place burying products and
services. People were not capable to run their vehicles on the roads because of lock-down action
of government, so that many oil and gas businesses become closed. However, this is not fault of
the government action, because on that time it was necessary to government for taking action
towards implementing lock-down to stop the spread of coronavirus (Covid 19) pandemic. Many

businesses within the market are still not capable for running their business operations in that
previous flow, because people are scared from the infection of coronavirus (Spash, 2020).
Currently they think that, if they visit in marker place, then they will become infected through
the coronavirus. However, recently the UK’s government has taken decision for encouraging
people to take proper safety while visiting at any public place. Currently businesses under oil and
gas industry are hoping that, this action of local government will may impact their sales ratio and
profit margin positively in market place.
These all are some key actions of local government which has impacted to different
sectors and businesses including oil & gas industry in both manners positively and negatively.
4. Immediate and future effects of COVID-19 on the crude oil prices
Existing crude oil price in the market of United Kingdom is £31.42 per barrel, but in the
last year 2019, the price of crude oil was £50.10 per barrel. So that, this data is enough to show
that, how coronavirus (Covid-19) pandemic has badly affected to market of crude oil in the
United Kingdom. Currently the whole world has badly affected by this pandemic, that’s why
businesses within each industry is not able to gain huge profit margins in market place.
According to many business experts, if researchers will not find the proper vaccine of Covid-19
very soon, then the market situations will may become worse (Izzeldin and et.al., 2020).
Currently this pandemic really has putted a very bad impact on the crude oil prices. Currently
any can simply differentiate the prices of current and precious year of crude oil. Nowadays, the
prices of this product become very low just because of this pandemic. This price will be stable
till vaccine not come in the market. This pandemic is not favourable for different companies of
different industries in market place. Currently many stock brokers tries to purchase crude on this
existing price by predicting that, prices of this product will be increased in the future. In this
situation, the demand of product can increase, so that the prices of crude oil will may be
increased very soon. Currently many other countries also not able to purchase crude oil through
the United Kingdom, because their economic condition become ineffective just because of this
pandemic.
The crude oil mainly uses by people for running their vehicles on road, but nowadays
people are not capable use their vehicles in unnecessary activities, so that consumption of this
product become very low in the recent few months (Mukanjari and Sterner, 2020). Currently, the
local government of the UK has given permission to visit different public places, like; gym,

parks, memorials, museums, factories, supermarkets etc. by taking full precautions from the
infection of corona virus. This step or action is taken by government for again boosting its
economic conditions at the international level, so that local government’s this step may be
increased the prices existing prices of crude oil in the future. Basically, when people again
started to highly use their vehicles as precious time, then the consumption of crude oil will be
defiantly increased. At the end, prices of this product exceed the £50 per barrel will be exceeded
in near future. Import-export activities of crude oil in the UK are now become very low, because
crude oil businesses of other countries are not able to systematically run their operations of
business in this pandemic situation (Roy, 2020). The cleaning process of crude oil is also now
become completely stopped in the factories, because employees within most companies are
avoiding to go within the workplace for protecting from infection of covid-19. That’s why
existing price £31.42 per barrel of crude oil can stable for upcoming few time period.
CONCLUSION
It can be concluded that there has been a diversified trend in the price of crude oil in UK
in the last decade which is from 2010 to 2020. At the beginning of the decade the price of the
crude oil rise drastically then there was seen a downfall in its prices. The movement of the crude
oil price impacted UK's GDP, inflation rate, household spending, government revenues etc.
There are various economic determinants of the change in the price of the crude oil in UK such
as the demand and supply of oil, production, consumption, speculator, broker etc. There is great
impact of government action in UK market like in 2016 UK government took decision to exit
from European Union. Due to this decision many businesses were impacted who used to import
and export. Because of the pandemic in 2020 forced many crude oil industries to shut down as
there was no demand for crude oil as there was no movement of vehicles. So it can be seen that
there are many effects of COVID-19 on the price of crude oil.

REFERENCES
Books & Journals
Dey, A.K., Edwards, A. and Das, K.P., 2020. Determinants of High Crude Oil Price: A
Nonstationary Extreme Value Approach. Journal of Statistical Theory and
Practice. 14(1). p.4.
Ferrer, R., and et.al., 2018. Time and frequency dynamics of connectedness between renewable
energy stocks and crude oil prices. Energy Economics. 76. pp.1-20.
Ftiti, Z., and et.al., 2016. Relationship between crude oil prices and economic growth in selected
OPEC countries. Journal of Applied Business Research (JABR). 32(1). pp.11-22.
Islam, M.S., and et.al., 2020. COVID-19–Related Infodemic and Its Impact on Public Health: A
Global Social Media Analysis. The American Journal of Tropical Medicine and
Hygiene, p.tpmd200812.
Izzeldin, M., and et.al., 2020. How COVID-19 Affected the G7 Stock Markets: Early Evidence
from a ST-HAR Model. Available at SSRN 3607842.
Jeris, S.S. and Nath, R.D., 2020. Covid-19, oil price and UK economic policy uncertainty:
evidence from the ARDL approach. Quantitative Finance and Economics. 4(3). p.503.
Kim, M.S., 2018. Impacts of supply and demand factors on declining oil prices. Energy.155.
pp.1059-1065.
Miao, H., and et.al., 2017. Influential factors in crude oil price forecasting. Energy
Economics. 68. pp.77-88.
Mukanjari, S. and Sterner, T., 2020. Charting a “Green Path” for Recovery from COVID-
19. Environmental and Resource Economics. 76(4). pp.825-853.
Roy, S., 2020. ECONOMIC IMPACT OF COVID-19 PANDEMIC.
Spash, C. L., 2020. ‘The economy’as if people mattered: revisiting critiques of economic growth
in a time of crisis. Globalizations. pp.1-18.
Online
Brent crude oil price annually 1976-2020. 2020. [Online]. Accessed
through<https://www.statista.com/statistics/262860/uk-brent-crude-oil-price-changes-
since-1976/>