Oil Price Fluctuations Case Study Example | Topics and Well Written Essays - 3000 words

Oil Price Fluctuations - Case Study ExampleDuring 2008 mankind witnessed the growth in the bells of crude rock petroleum stretch a new high threatening the world economy at large, thanks the financial crisis, the recession has brought it down again. It may be exaggerated that ontogeny and decrease in the oil impairment effects the world economy which is makes it necessary to study its impact on the world economy and how it effects the selection energy resources.OPEC reports that the recent surge in the oil monetary values occurred at the time when there was absolutely no shortage of oil at all. The price flush accompanied with volatility has been recognized in all commodity groups including energy, metal or agricultural products with prices doub lead since 2005. OPEC reports that it has increased the supply of crude oil by 4 mb/d since 2003 and further increased it by more 1 mb/d with absolutely no shortage of crude oil in the market. (World Oil Outlook, 2008)1Many elements have led to this volatility in crude oil prices. Keeping aside the assume and supply elements, fluctuations in the vaulting horse value has been the main cause for increase in the prices of crude oil. ... Some factors that have helped the price upsurge include US occupying Iraq, Saudi Arabia being attacked by terrorist temporarily affecting oil supplies, speculative investments by financial investors.3 Decline in OPECs Surplus Oil Production CapacityIncreases in global demand for the crude oil have forced the oil producing nations to produce more crude oil in order to meet the demands. The above figure shows that there has been drastic decline in the oil production of OPEC countries this demand/supply factor is the main reason for increase in crude oil price touching $140 per barrel.(Hiromi Kato, 2005)4 As per the BPs Statistical Review of World energy for the year 2007, it is revealed that demand for the world touched 83.7 million barrels/per sidereal day or 3.9 billion tons/yea r which is equal to five times the annual household water consumption. The above figure shows that the increasing demand has led to upsurge in crude oil price which rocket from mid 2005 till 2008. As per the figure, oil price didnt had any upsurge till new-made 2000 but due to increased demand in Asian countries, the crude oil price escalated. Trends in Oil PricesRoncaglia using Hotelling theory explains that the equilibrium price of the scarce resource net of extraction costs rises over time at the rate that is equal, year after year, to the interest rate.5 It is understood from this statement that price of the scarce commodity increases at the rate year after year with the added interest rate. The crude oil is an important ingredient in the growth of world economy. It is learnt that commodity traders are responsible for oil prices who bid on oil futures contracts by looking into current supply of oil in terms of output, oil