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Instability Of Oil Prices

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  • Category Economics
  • Topic Oil
  • Words 919 (2 pages)
  • Downloads 23
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Within the last 36 months, the price of oil has dropped significantly, per barrel of oil, due to a number of factors that have come into play in the international market for oil. Because of the ever-changing global trade for this commodity, and the various circumstances and events that have impacted its cost and demand.

One such factor is the increase in value of the U.S. dollar, which “has been the main driver for the price decline of crude oil over the last few years” (Tarver, 2015). Because the U.S. dollar has gotten considerably stronger over the years and has even outperformed the euro in the last twelve years, there is a correlation between the value of the dollar and the cost of global commodities, which are priced and then sold by the dollar. As a result, it has put enough pressure on the market so much so that the cost of oil has dropped.

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Another notable factor in the sharp decline of oil prices is the Organization of the Petroleum Exporting Countries (OPEC), and their inability to come to a unanimous decision regarding whether or not they should cut oil production in order to prevent an “oversupply” (Tarver, 2015), which would only further decrease the cost per barrel oil.

It is difficult to say whether or not the price of oil will continue to stay down in the long-term, but in the short-term it is very likely to do so, as long as the dollar remains strong and OPEC’s indecision and oversupply of oil floods the market. Our discussion on production costs and decisions on running plants is relevant to this issue as if there continues to be an oversupply of oil, it means a higher production cost in order to process it all in the power plants that require a high amount of energy in order to function on a regular basis, and that would mean corporations would be strapped for funds, and would have to charge more for their services in order to make some sort of a profit.

In a microeconomic perspective, the winners are the individual and collective buyers that pay less for oil per barrel, while the losers are the sellers that are making less of a profit than normal due to circumstantial factors. In a macroeconomic perspective, the winners are the corporate entities involved with the oil markets and manage to make a profit off of their purchase of oil from government providers and OPEC, whom are the losers in this case, as they’re sabotaging their own efforts at buying and selling oil from each other with their oversupply of oil hitting the market and losing profits because of this.

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