Situation discussed in article
The article Cbsnews.com, 2016., talks about how the pricing of oil is slowly rising and how the overall demand growth is slowing down. There are a lot of anticipations around the economic slowdown. The studies also suggest that supply from OPEC are functioning at almost near to set standards or record level because main suppliers like United Arab Emirates are at the highest level (Baffes et al, 2015). The changes in the supply & demand and the overall balance between them has been weighed on the prices of the oil. This new pressure on the oil prices is further followed by a point of time when oil has been recovered from so many layers covering the low times to become stable. In 2014, the prices of the oil were rising however there was a major crash in price in the start of 2016. This is because of so many factors that hit the prices consisting issues in the overall scale of the current economic slowdown in several countries like China (Juvenal & Petrella, 2015).
Supply and demand shift factors
There are number of factors that are impacting the oil price in the global market. There is rapid rise in the demand of oil which is of course one of the important factor. Back in the year 2004, the IEA (International Energy Agency), reports that demand of oil in world has increased at a fast rate in past sixteen years. There are number of developing nations that are continuing to expand and are more likely to follow the same kind of pattern which is also rising for the overall demand for the energy (Kilian & Murphy, 2014).
At the same time there are many oil manufacturing nations that have already undergone so many issues that have further impacted the overall ability to capitalise their complete capacity like Iraq and Venezuela. There has been a lot of turmoil in Iraq which impacted the production and the violence with low standard manufacturing techniques in the nation previously, have damaged a lot and recovery is challenging (Taghizadeh-Hesary & Yoshino, 2016). On the other hand, country like Venezuela has been impacted by the political issues. There has been many strikes and other political conditions that have reduced the price of oil and its overall production. The prices of the oil have a major effect on the global demand growth where different oil-importing nations like U.S. have been handling the supplies of OPEC oil cartel which is running at the different recovery levels. They tend to pump it at the higher levels even when it is added that non-OPEC supply is expected to return to growth next year. The alterations in the demand supply balance the forecast which has mainly weighed on the oil prices where the barrel of benchmark crude is down mainly by the ratio of 2.5% wherein, Brent crude which is an international standard has fallen 93 cents approximately.
Effect on equilibrium price and quantity of the shift factor
Following are some of the important factors: -
- The oil intake in the country like China has risen the consumption of local people while relying on the recovery of European economic condition that trigger some change in the current marketplace.
- The demand of Chinese as well as growth in European market along with US based rebound are seen by many economist as important catalysts for the global level recovery (Baumeister and Kilian, 2016).
- There are also many changes in international consuming patterns where people now are more aware of the cost and are looking for options which are more conservative in consumption.
- The IEA oil report clearly shows that it might be rolling over the existing levels with no changes to the demand and supply. The current global growth of oil is found to be 1.3 barrels a day which is lower than 1.6 million that is seen in 2016.
Baffes, J., Kose, M. A., Ohnsorge, F., & Stocker, M. (2015). The great plunge in oil prices: Causes, consequences, and policy responses.
Baumeister, C. and Kilian, L., (2016). Forty years of oil price fluctuations: Why the price of oil may still surprise us. Journal of Economic Perspectives, 30(1), pp.139-60.
Cbsnews.com. (2016). Oil supply will outrun demand into 2017. [online] Available at: https://www.cbsnews.com/news/oil-supply-will-keep-outrunning-demand-into-2017/
Juvenal, L., & Petrella, I. (2015). Speculation in the oil market. Journal of Applied Econometrics, 30(4), 621-649.
Kilian, L., & Murphy, D. P. (2014). The role of inventories and speculative trading in the global market for crude oil. Journal of Applied Econometrics, 29(3), 454-478.
Taghizadeh-Hesary, F., & Yoshino, N. (2016). Which side of the economy is affected more by oil prices: Supply or demand?. In Monetary Policy and the Oil Market (pp. 29-53). Springer, Tokyo.
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