Unstable Oil Prices (Microeconomics)

In: Business and Management

Submitted By Sajee
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Pages 5

1. Identify 2-3 factors that affect Demand for Oil (should include the major global economies - US, China, Europe, Asia-Pacific).
What is the effect of each of these major economies affect the Demand for Oil - evaluate if it's causing a SHIFT to the Right or Left for Demand. What do you think is the overall net effect on Demand for Oil? a. One of the factors that affect the Demand for Oil is TRANSPORTATION (both commercial and personal). The Demand for Oil is relatively dependent on the demand for transportation in United States and other advanced industrial economies.

Cars, trucks, airlines, railways and shipping (freight and the like) accounted for 71 percent of total U.S. oil consumption in 2013, according to the U.S. Bureau of Transportation Statistics. 97 percent of Transportation Energy Sector’s needs were obtained from petroleum-derived fuels, including gasoline, diesel, jet fuel and fuel oil. Prior the oil shock in 1970s, almost half of U.S. oil demand came from power producers, and for heating homes, offices and factories. But following the sharp increase in oil prices, oil’s role in other parts of the economy was largely replaced by cheaper coal, gas, nuclear and eventually renewables, leaving oil as a transport fuel. Similar pattern was tracked in other advanced industrial economies. Oil demand has become inseparable from the demand for transportation services.

b. ECONOMIC GROWTH has played a major role in determining the demand for oil.

While oil consumption in the OECD countries declined between 2000 and 2010, non-OECD oil consumption increased more than 40 percent. China, India, and Saudi Arabia had the largest growth in oil consumption among the countries in the non-OECD during this period. Economic growth expands a country’s economic capacity leading to more demand for oil consumption. c. The recent…...

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