Oil price dynamics: aging fields, declining supply, and government policy alternatives

Declining Oil Fields:

Giant oil fields are the most essential contributors to the total oil production in the world with approximately one percent of the total number of oil fields across the globe being classified as giant oil fields. In the past few decades, there has been an evolution of decline rates in these giant oil fields as well as smaller oil fields across the globe. These decline rates have been as a result of various factors that include production techniques and the impact of new technologies. Furthermore, these factors that have also led to the continual increase of the average decline rate of smaller oil fields around the world. Given that the decline rates are expected to continue more rapidly in the future, they will have significant implications on oil prices. Currently, oil prices are experiencing an ongoing rise because of the increase in demand with no increase in supply and the lack of additional investment on the aging oil fields and technologies. The world continues to experience an ongoing oil supply challenge given that the decline rates are not only high but they will also continue to increase in the future (Hook, Hirsch & Aleklett, n.d.).

With these rising oil prices and increasing decline rates of both smaller and giant oil fields across the globe, government policies are to blame for allowing decline in oil fields. Governments are allowing oil fields to decline because they are unwilling to confront or prepare for this challenge of oil production. Governments are also allowing oil fields to decline because of the thought that the problem can be solved by technology and the market. The other major reason for governments' inaction to solve the problem of declining oil fields is the prediction of an increase in global production in the next decade by petroleum geologists. However, governments can find the solution to this problem using new technologies that are aimed at halting the decline and stabilizing oil production. Furthermore, the government can also help solve the problem by creating awareness on the consequences of oil depletion while establishing policies that are aimed at increasing oil production.

Crowding Out and its Use in Hotels:

Crowding out is a term that is used in economics to refer to any decrease in private consumption or investment that results from an increase in government spending. Crowding out also occurs in cases where the government borrows heavily in addition to the borrowing of individuals and businesses. This effect may also emanate from state spending in areas that may be effectively provided by the private sector like health care. While crowding out may cause economic activity to slow, it rarely occurs except during times of sharply increasing interest rates and tight money. In crowding out, private sectors are usually crowded out because of the fact that government borrows heavily with high interest rates that it must and can pay as compared to the private sector. Given that government spending in crowding out is rarely for the purpose of producing new products and creating jobs, the private sector and economic activity usually take an immediate downturn ("About the Crowding Out Effect," n.d.).