The World Oil Market Assignment Example | Topics and Well Written Essays - 1000 words

The World embrocate Market - Assignment ExampleA tight balance between supply and expect faeces lead to high prices that cause both higher expenditures for consumers and higher incomes for producers. In economics, exhaustible resources generally follow up on the rule that the rate of growth must equal the rate of interest in order to light upon industry equilibrium. However, due to the unpredictable character of future crude supply and carry conditions, oil prices do not generally follow this rule. Most of the time, it exhibits backwardation wherein future prices atomic number 18 lower than current one and only(a)s. Future demand is hard to predict because it is difficult to foresee changes in energy technologies and it takes years for consumers to switch to other resources should prices go off the roof. On the other hand, investment is expensive and risky and it takes a while before take supply turns to high capacity. Oil prices likewise behave unexpectedly since the mark et is responsive to speculative pressures, operational constraints, and political conditions. Hurricane Katrina, by reducing accelerator pedal supplies (which is chiefly derived from crude oil), became one dramatic factor that caused oil prices to skyrocket in 2005. The storm reduced oil production, transportation, and refining capacity--it paralyzed major oil and gasoline pipelines that carried supplies down from the Gulf Mexico and took down offshore oil platforms. Power outages also caused problems in oil and innate(p) gas distribution in many aras. The large drop in supplies caused oil prices to rise. Additionally, consumer expectation contributed to the demand component. With the hurricane retarding oil production and restricting supplies, they expected prices to rise. They immediately increased the demand by buying gasoline, hoping to require up their tanks before prices start to rise. Reduced supply and increased demand caused oil prices to increase dramatically, as show n in the graph below 3. Analyze the structure of the world oil market & identify what contour of market structure it has. The world oil market structure is oligopolistic since the market is dominated by a limited number of suppliers. An industry is said to be oligopolistic if few supply the majority of the output and if those suppliers are interdependent. In oil production, about 50 percent of the output and 70 percent of the reserves are controlled by a cartel. Production is handled by both the public and private sectors. However, oil production is well(p) one aspect of the market-converting and refining it to other consumer products is another facet of the total world oil industry, one which has its own dynamics and regulations. Worldwide supply and demand determine oil prices, with great influence from OPEC. On the supply side, OPEC provides most of the worlds supply and normally acts as a semi-cartel, influencing oil prices by maintaining excess capacity. It also tries to main tain oil prices at its target level by setting quotas or production limits for its members. On the other hand, non-OPEC suppliers have generally limited reserves and typically behave as price takers. OPECs constitution in recent times is to control crude oil inventories and reserves in consuming nations in order to balance the market.