Analysis of the Impact of Oil Prices on the Global Economy Essay examples

1208 Words 5 Pages
1. Introduction
The price of oil becomes the bone of contention recently. Oil price seems to be hitting new highs with the regularity of a metronome. It is a bad news for customers who have to pay more on it. More frightening still, this situation may get worse before it come back to normal. No one can exactly predict when the pendulum will soon swing back again since all uncertain factors existing. From the supply side of view, the OPEC is the main producer, being prepared to add or subtract production to balance demand. Moreover, Russia is another major producer of oil in the world. They usually produce more when demand more and subtract when demand reduce to control the price of oil. Anyway, speculator is another factor we have to
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It requires additional refining capacity, of which there is a shortage. It will cost the producers large amount on the facilities to convert crude petroleum to petrol. The input price and extra capacity will lead to a higher cost of production and shift the supply curve left, meaning that supply same level of product, the price of the oil will be higher.

Furthermore, since the OPEC countries expected the oil price keep in high, they will not tries to produce as much oil as they can. Therefore, the quantity of supply will not increase much.

Another thing we have to consider in supply is speculators¡¦ investment, they may take the oil off the market temporarily to aggravate the shortage of quantity supply and pushing the oil price higher. Therefore, extra 500,000 barrels a day may not total enter into the market. It still does not solve the supply shortage problem.

2.2.2. Oil Demand Analysis
Demand refers to the ability to pay and a willingness to buy by the consumer. Demand can be shown by a demand curve which shows the maximum quantity demanded at all prices. The demand curve may different in short-run and long run. Quantity demand can be determined by many factors such as price, consumer behavior, prices of related goods and consumer¡¦s expectations.

Normally, the quantity demanded of

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