The Structure of Oil Price Market in the World
Introduction
According to US President George W. Bush, being dependence on the oil will create the national security issues and there are many people who got the oil which cannot be like us. Thus, the world oil market is the one that controls the prices everyone is paying for the gas at every gas station neighborhood. The profit of the gas stations, taxes, and the profits of the oil refinery are all taking their toll though when the prices of the gas go up, then, this is the time the oil market is in the action (Steven Stoft, 2008).
Since, the world had the huge and still increasing on the demand for the oil, there are still not sufficient supply of the oil in meeting these demands. The oil world is commonly controlled by the OPEC or the Organizations of the Oil Exporting Countries though not all countries are part of it. This grouped had been formed in order to pressure the major oil companies as well as in refraining the lowering of the prices from the countries that major producers of oil (OPEC, 2008).
Structure of World Oil Market
It had been known that the oil industry is depleting and fast and the majority of the oil producing organizations and countries are have slow eaten up by their production rates. Thus, the world oil market has the structure of being oligopolistic whereas the oil market had been dominated by the fewer suppliers which includes the Opec and the Opec+ as well as the North Sea. In order for the industry to be under the oligopolistic approach, it is only important that it has few large firm that holding the large amount of the output which must be independent and the additions to the barriers are all very high due to the reason that ever participant are aware to other’s actions and the decision’s of every firm will affect the other firms. The prediction can also occur that the industry can be inelastic because of the great changes that rise in the prices of oil and to the people that has the average income that needs the money that signifies changes in preference and test. Therefore, most of the companies that are involved in the distribution and production of oil can be competitive. In reality, the oil had been traded like any other commodity whereas there are future exchanges and institutional spots for the oil products and crude oils. This crude oil had been are traded between the traders and the producers or the consumers that has independence to one another. The supplies move from the cheapest where the consumers are prepared in paying for them and in follows the investment in market. Inside the regions of imports, there are no controls for the prices and the producers of Russia are competing in the oil export. Thus, the oil prices in the domestic market are moving towards in the international levels in China and in Russia as well as other developing countries. This has effect which is connected in setting the commodity markets wherein the competition rules whole the economics is working (Mitchell, J et. al., 2001, p. 179). Therefore, the oil was bought for the cash and being delivered immediately. Then, the current price for the oil had been influenced by the market prices in the future due to the representation of the collective view at the given point in time.
Determining the Oil Prices in World Market
The oil prices can be determined by the aide of the short term relation of the demand and supply wherein part of the producers countries are playing the key roles below the specific price benchmark and the international oil prices that determined by the large state of OPEC and to their political discretion. The other way is the long term perspective for the depletion in the total reserves. This implies that the quality is playing the certain role for the formation of short term prices whereas the market prices can also differ in as greater than 20% (Siedenberg and Hoffmann, 1999, 381).
In other words, the prices of crude oil can be determined in the conditions of global demand and supply to the international market. The OPEC’s production policies can help in determining the global availability supply which can have the important influence to the world prices of oil. This can activity will only depends on the conditions of the prevailing market, it own cohesiveness, and the co-operation degree for the non-OPEC countries of oil producers. Taking the example of Ontario that imports its crude oil in the Canada or from the offshore needs to compete to the other users in the oil and needs therefore needs to pay the world prices. Therefore, the crude oil was in different prices which can vary its quality particularly the value of the products that made to varies from the crude to crude and their relationship was made to be constant which can changes the prices also in the West Texas Intermediate because of the changes in the crude prices (Ontario, 2008).
Factors Influencing Oil Prices in the Future
Many factors are predicted that can influence the prices of oil volatility and other prices of energy commodity in the next 4 years. The factors which can be considered are the high geopolitical risk in the OPEC producers which can continued for the economic growth in Asia and in China that tied to the oil. The other factor is the continuation for the rise of gasoline demand in US as well as the lack of significant investment for the gas and oil production and exploration for the major oil producers. These key factors are all inter-related which can lead to the existing environment of high energy prices (Fusaro and Vasey, 2006, p. 39).
Through the continues development of science and technology in the future, the oil prices can be affected by the production of the natural gases and energy which can be the primary sources of energy in the future. Thus, it can continue to increase the supply of the hydrocarbon fuels in meeting the demand for energy globally.
Low Oil Prices Affects the Global Economy
When there will be a fall in the oil price in the world market, it does affect to the world economy as the growth rate will fell down, there will be a tremendous impact on the worldwide trade as decrees in growth rate. There will falling down in the foreign direct investment while having the inflation as three folds and the rise of the unemployment rate. The worldwide GDP can drop if the fall of the oil prices can determine. The low inflation and the low oil prices can boost the economic growth which can get the contribution of the overheating in US. The dependent on the Middle East can remain high though there will be sources of the political instability for the remaining numerous regions (Maginn, J et. al., 2007, p. 197).
Demand and Supply Diagram for the Price of Oil
There is a significant effect for the price of the oil in the world market when there are changes in the supply and demand for the oil and in different scenario.
i. For the world Recession
If there is a world recession, there is also restriction of the supply of oil which can have the huge impact in the increasing of the price. The figure above shows the demand and the supply which shifts to the left. This means that the demand in the oil is inelastic and the decreased in the supply of oil will result to the price and elastic demand though the oil needs to be inelastic and steeper.
ii. Iraq’s Oil Production Reduce the Cost of Producing Oil
The reduction of the production of oil for majority of the oil producing countries as the Iraq can increase the demand for the oil worldwide. The graph below shows the shift of the demand that associated to the supply. Since the demand curve shifts, it causes the excess demand in the oil and can be met by the reduction of stocks but the supply curve shift left which economic impact also. Therefore, the increase in the price also declines the inventories.
iii. UK Adopts the Energy Efficiency Measures
Adopting the energy efficiency practices for UK can significantly affect the market oil price in the world. The table below shows the graph of shift of how price affect the adoption of energy efficiency measures.
With regards to the adoption of UK in the energy conservation program will affect the price of oil whereas the supply will also shift to the left. Thus, the demand will also increase and it is proportional to the increase for the price of oil in the world market.
iv. China and India’s Growth affects Oil price market
For the pats years, China and India made the significant changes in increasing its role for the economies and their leadership had been successful for the reduction of delivering and reducing poverty for their citizens. For China its growth was 9% and the Indian economy grows 5 percent in the same period. Thus, the consequence for this economic growth is the greater demand for the energy and great consumption of oil. In general, the overall demand in energy for India and China can also be projected in the year 2030 while the demands of the prices of oil in the world market also increase.
Conclusion
The shock of oil prices can affect the consumers and can bring wealth to the oil companies which always and true statement as the market way of treating the consumers and producers when encountering shortage. This implies that there are many uncertainties existing in the price of oil in the world. Accordingly, the price can keep updated because of the shortages for the suppliers as well as the increase in the demand without the consideration for the speculators in the short run manner. In the long term issue, the price of oil can go down while price can peaked already which can result to the speculators of unloading the inventories that cause the fall of prices. For the consumers’ purposes, the changes of the gasoline to the alternative one will also affect the shock of the oil price and can also hurt much the consumers.
Bibliography
Gasoline Pricing 2008, Ontario, viewed 09 October, 2008, http://www.energy.gov.on.ca/index.cfm?fuseaction=oilandgas.faqs&subtopic=gaspricing
Maginn, J et. al., 2007, Managing Investment Portfolios: A Dynamic Process, John Wiley and Sons, United Kingdom.
Fusaro, P and Vasey, G 2006, Energy and Environmental Hedge Funds: The New Investment Paradigm, John Wiley and Sons, United Kingdom.
Siedenberg, A and Hoffmann, L 1999, Ukraine at the Crossroads: Economic Reforms in International Perspective, Springer, United Kingdom.
Mitchell, J. et. al., The New Economy of Oil: Impacts on Business, Geopolitics and Society, Earthscan, United Kingdom.
Organizations of the Oil Exporting Countries 2008, OPEC, viewed 09 October, 2008, http://www.opec.org/home/
The world oil market 2008, viewed 09 October, 2008, http://stoft.com/p/40.html.
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