Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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a. Explain the main reasons that caused a fall of the oil
b. Is the
please make sure the answer is correct 100% and to answer in your words.
Transcribed Image Text:Understanding the oil market: Supply and Demand effects on price
The global oil market has been affected in the recent years by many factors that induces the
global price to fall. This consequence is vital for the budget of the oil dependent countries. After
the huge decrease on oil price in 2016, many traders and analysts believe that oil markets are
still not immune to many problems and the oil price will tend to fall again.
The main factor and problems toward a fall of the oil price started in 2015 but considering that
people and oil companies do not tend to react immediately to the change of oil price, the
total consumption and production of oil did not get any surprised changes in the short-
run.
The main factor that caused the drop on the oil price is the OPEC failure. The member countries
of OPEC did not agree to stabilize the oil markets, since the organization decided against cutting
production at a 2014 meeting in Vienna.
It is estimated that if OPEC does not cut production, the result is a further oversupply of oil,
causing a pressure on crude oil prices for the long term.
On the other hand, we have faced a slight decline of the demand. The economies of Europe
and developing countries are weakening, and at the same time, vehicdes are becoming more
efficient, which has caused the demand for fuel to lag. Moreover, many countries are relying on
alternative resources than oil, which has further decreased the oil demand.
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