Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
¶ … Oil replays 1980s bust discusses the collapse in oil prices in the mid-80s versus the collapse in oil prices in the second half of 2014. He notes that while the pace of decline was similar, than the reasons behind the decline are different. The author notes that time is an important variable. Prior to hydraulic fracking, oil projects were massive in scope and scale, and took many years and billions to bring to fruition. As a consequence of this, the supply of oil on world markets was fairly easy to predict. New oil would not suddenly materialize from just anywhere. Today, the time lapse between when oil is discovered and when it hits the market is much shorter, and the cost is lower. The wells in the shale fields are smaller, so the entire exploration and extraction cycle (i.e. The cash conversion cycle) is shortened considerably. This also encourages new money to get into oil, because the returns come faster.
In the 1980s, there was a lot of new supply coming onto the markets, but the oil supply was still in the market as well. This created a glut, which combined with a sustained reduction in demand, drove prices lower. Ultimately, oil prices...
The author looks at the supply and demand conditions for the current global oil market. The supply has increased significantly with the new shale developments, at a point when demand in the West is peaking -- there is still some growth in places like China but the increase in supply has outpaced the increase in demand. Industries observers rightly point out that oil is still finding its equilibrium point. Because of the short cash conversion cycle, the market will adjust more quickly to the latest price declines, as the low prices will stunt the development of new wells. This will slowly re-align supply with demand, causing prices to rise back up. The only real issue is how long this process will take, and where the equilibrium point will be (Gold, 2015).
The role of OPEC in the price movements should also be considered. OPEC is a cartel, and their management of global oil production is one of the mechanisms that reduces the influence of the market, in order to influence the prices. OPEC would normally seek to maintain higher prices by cutting its output (and thus global supply), something that…
References
Gold, R. (2015). Back to the future? Oil replays 1980s bust. Wall Street Journal. In possession of the author.
Pritchard, A. (2015). It looks like North America will win the global oil war -- but it will be a long and bloody battle. Financial Post/The Telegraph Retrieved April 26, 2015 from
This was the clear result of a tightening in supply, however. Another major fuel price shock occurred as a result of the Iranian Revolution and the subsequent Iran/Iraq War. This again caused a supply shock as two of the world's major oil producing nations were completely destabilized (Williams, 2007). In the 2000s, a number of factors have combined to drive up oil prices. Major economic gains in key, highly-populated developing
Higher prices means a decrease in demand, and consumers who are already experiencing difficulty paying for basic goods and are even less apt to buy luxury items. Consumers are more likely to cut things out of their budget, and look for lower-priced items when shopping for necessities. Already, I find myself buying generic goods, looking for food on sale, and putting off replacing clothing and shoes with new items.
The member nations of OPEC are relatively few, making it easier for them to form a producing conglomerate; the idea of a consumer conglomerate is untenable, as OPEC will always be able to find an extensive enough market for its commodity with other countries not in this conglomerate, and thus they can still control the price. Conclusion The oil industry is not fueled by supply or demand so much as it
oil prices and the stock market. The relationship between oil prices and increases in costs to transportation, heating and production are reviewed, and the role of spiking oil prices on market uncertainty is discussed. Overall, higher oil prices are historically linked to declining stock market prices, and it seems reasonable to suggest that future stock market decreases will come from current increases in oil prices. Stock market performance is strongly
The implications of this vulnerability to volatile oil prices is simple; 'high crude prices must encourage European governments to make investments in energy sources other than oil' (Wielaard, 2005, p.1). The negative economic impact of rising oil prices is typically more severe for developing countries than for OECD (Birol, 2004, p.2). This is currently the case as high oil prices 'are badly affecting many developing countries' (Schlein, 2005, p. 1).
Oil Price History Similar to other goods’ prices, crude oil prices undergo major fluctuations during surfeit or dearth of crude oil. This particular product’s price cycle can span over many years, reacting to both demand variations and non- OPEC (Organization of the Petroleum Exporting Countries) and OPEC supply. Through most of the course of the last century, American petroleum rates were governed largely by price or manufacturing controls. The period following