Why The Price Of Crude Oil

Since its discovery back in the year 1858 crude oil has been become one of the most sought after resources on the face of the planet. It is due to this fact that the oil industry has fallen into a rather odd category in the case of globalization and seeking out new markets, new labor and new customers. The reason being that the need for crude oil and fuel is always present therefore the product of oil in its basic sense sells itself and the companies do not have to go out and publicly advertise it in the sense that clothing lines and other commodities do. Oil companies must focus more on the matter of why an individual should buy their oil and along with other alternative fuels over their competitors even though in the end the companies

Oil is the product that each and every one of us use. It can be used for fuel, heating and even cooking. The most often known for unstable price is crude oil or gasoline. According to the The Economist, The main reason for price shifts of oil is oversupply. The oil production in Saudi rose 10.3 million barrels per day. This increase is the effect of a new method that I being applied to oil extraction. This method is called fracking, fracking is where they drill into tight-rock formations then gradually turning horizontal for several thousand feet more. This results to accommodations to multiple oil wells. This new approved method of oil harvesting has raised the productivity gains and reduced the cost of harvesting oil.

The consumption of the oil cause changes in the supply and demand. The United States produces 11 million barrels of oil every day. We are one of the biggest countries to have a big influence on the production and prices of the oil. The basic supply and demand theory explains that the if a product is produced more, the cheaper it should sell. If a country were to double the output of oil day, prices would fall and the Production is high, but the distribution of oil isn’t keeping up with the market. The United States builds an average of one oil refinery per 10 years. This is a net loss due to the fact construction has slowed down since 1970s. Since 1970s, the United States has 8 less oil refineries today. The reason why we are not oversupplied with cheap oil is because of the other countries’ higher net margin and the only operate at 62% of their capacity. Excess capacity is only there to meet future demand. With demand moving accordingly, oil prices will continue to be set mostly by the market — despite external players’ best efforts. (McFarlane)

The consensus from the 1970s and 1980s was that there was an inverse relationship between oil prices and real economic activities. This belief later changed when the oil price crash of the mid-1980s failed to boost economic growth. Researchers then believed that increasing oil prices negatively affect the economy whereas falling oil prices have very little impact and by the 1990s this impact was assumed to be minimal (DePratto, de Resende and Maier 2009). More recently, researchers have found that increases in the oil prices adversely affect the economy whereas the impact of a decline in oil prices on GDP growth is only negligible (Jimenez-Rodriguez and Sanchez

In the early stages when WTI oil was first becoming useful the price was at an all time low of just $15.01 US per barrel back in January 1946. The price of oil had its first major spike in January 1974 when the price jumped from $22.44 US to $50.30 US per barrel, which was an impactful price change as money was not in high quantities. When the price climbed and reached $114.51 US per barrel in April 1980 the demand for oil dropped as people did not have to the money to afford petroleum, which caused a downfall in price to $27.23 US per barrel.

Oil-The article”OPEC #1”explains the oil prices.The Oil of the Middle East is the price of oil has fallen by nearly half in just six months.Anyone who buys oil or gas is happy because the prices are low.Car and truck drivers, airlines, and shipping companies are all happy because they don't have to spend as much money on gas. Oil companies are not very happy. They are losing money.A barrel of oil now costs $58 and last summer it was $107.Oil prices have gone down and people are happy,at least some of

From 2010 until the end of 2014 oil prices remained relatively constant. With very little fluctuation over these four years, the average price per barrel of oil was around 110 dollars. That price has been more than cut in half within the past year. The price for United States crude oil is now just 48 dollars a barrel, the lowest it has been since 2009 (BBC News). So what is the cause for this sudden change and to what effect will this have on the United States’ economy as well as the global economy?

During this period, the price of ‘Brent’ crude oil (like WTI) reached an all time high in July of 145.61 USD/BBL in response to strong economic conditions prior to the Global Financial Crisis hitting in early 2009. The price of ‘Brent’ crude oil also similarly bottomed out in 1970, with a record low of 2.23 USD/BBL and following the GFC, prices sharply fell, with prices at 62.04 USD/BBL as of April 2015. Over the 45-year period, significant events such as the GFC, the Iran/Iraq war, the Iranian revolution and various OPEC cuts (as shown in graph 1) has caused the price of ‘Brent’ crude oil and crude oil as a whole to historically be fairly volatile and as such, these various political and economy-wide factors provide an explanation for volatility in prices over the past 45 years.

With the current spike in oil prices, many American consumers have asked, 'what is going on?' In order to fully understand the current situation and how it is affecting the economy one must look at a variety of factors including: the history of oil crisis in the United States, causes of the current situation, and possible outcomes for the future. It is only after meticulous research in these topics that one is prepared to answer the question, 'what is the best possible solution to the oil crisis?'

As most of the world knows oil prices have been plunging downwards since June 2014, in which a barrel of oil has fallen more than 70 percent from that time, was $90- $100 a barrel, now $40 a barrel and approaching $30 a barrel. This fall basically came about due to rapid increase in global oil production which started to exceed its global demand therefore forcing prices down. “Earnings are down for companies that made record profits in recent years, leading them to decommission more than two-thirds of their rigs and sharply cut investment in exploration and production. Scores of companies have gone bankrupt and an estimated 250,000 oil workers have lost their jobs.” (Krauss, 2016).

Aside from the 2008 crisis, prices of oil have never been cut in half in a matter of months since 1900 – until just recently in 2014. What might’ve caused this steep decrease in prices? Well, it appears as though the surge in US oil production had a primary role in breaking the market. Meanwhile, demand had remained fairly stagnant. Extensive federal intervention into the United States’ oil and gas markets began back in 1930s and continued well through the

The modern world of today runs on fossil fuels with crude oil being the live blood of industrialized countries. Though much of the twentieth century old was plentiful easily acquired and low in cost it has only been in the past thirty years that we have seen oil prices rise substantially. This can be attributed to many different reason. These price changes have challenged the industrialized world to become more creative with their techniques of both acquiring oil and using it.

In the modern world energy has become very important since it helps drive most industrial as well as home based activities. For more than a hundred years, oil has been used to provide to this vast energy requirements. Oil companies around the world have facilitated the exploration, drilling, refinery and distribution of oil in their defined regions. The industrial part that oil companies play can be considered to be much greater than the domestic role. Oil companies produce diesel, petroleum, liquid petroleum gas and other products which are used to drive industrial machines used in production of various commodities. By this virtue, oil companies become an integral part of an economy (Marcel, Valerie, and John V. Mitchell, 98).

At the same time, fluctuation of the crude oil price has put pressure on the price level and economic growth in China. In this research I ask: “What is the interaction between crude oil price and China’s economy?”

The sporadic nature of oil prices has over the years posed as a great deal of concern to economists, investors, financiers, consumers, analysts and other relevant stakeholders. In a perfect market, the price of a commodity is an indication of the present circumstances as well as future signals that could impact demand and supply. Ordinarily, we expect prices of commodities to move in response to changes that affect demand and supply at a relatively ‘normal’ rate. When prices change drastically within a short period and consistently over time, then such market is fraught with high volatility – a typical case of the crude oil market.