Also for the reasons above; if the price of oil rises too high then it might also DECREASE the demand for it i.e. if the price of oil increases, then the price of petrol will also increase, therefore making some people reluctant to use their cars and reverting to forms of transport such as buses/trains which
Supply and demand doesn’t just affect oil but any other commodity which is traded in large amounts.
This is a graph showing the prices of crude oil during the last 12 months:
(Source; CNN.com)
According to the graph the price of petroleum has risen a massive 28.25% over the past year, throughout 2010 the price has fluctuated but at the start of 2011 we can see a sharp increase pulling up the price to an all time high since late 2008.
The cause of the spike in early 2011 is mainly due to the Middle East and North Africa unrest; the two regions combined hold approximately 60% of the world’s proven oil reserves, Libya; which is currently facing protests produced a steady production of 1.5 million barrels per day, but due to the unrest it has cut more than 70% of production.
Potential unrest in other oil-rich countries in the region has also triggered oil prices to soar; experts fear the current protests may lead to“domino-effect” and cause unrest in countries with larger oil reserves than that of Libya such as Saudi Arabia, Iran and Iraq.
“The Organisation of the Petroleum Exporting Countries” more commonly known as OPEC is a major player and has a big influence on crude oil prices. OPEC is a trade bloc made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Its main goal is to maintain a steady output and meet the interests of the producing nations all the while maintaining a steady price and output to meet demand and avoiding unnecessary fluctuations. OPEC exerted its control over the world oil prices in 1973 when the Arab member states of OPEC imposed a trade embargo on the United States and Western European Countries for their help to Israel to resupply in the Arab-Israeli conflict of 1973 or “The Yom-Kipper War”, this caused oil prices to soar from just under $20 a barrel to almost $60 in 1974, this triggered a worldwide crisis in which western countries had to ration their oil supplies:
The picture below explains the flag policy (which was implemented in several US States) in 1973-74 in Oregon, United States in which gas-stations put up a flag to show whether gas is available or not
(Source: Wikipedia)
Although OPEC isn’t as influential as it once was due to the discovery and development of new oil reserves in Canada, Alaska, and Arctic Russia. It still holds 79% of the worlds proven oil reserves and 44% of the world’s crude oil production.
Due to the political unrest in the Middle East and fears in the Western world of the shortage of oil, prices have soared to record heights which is why OPEC member states have agreed to increase their output to meet international needs.
I have come to the conclusion that the most influential factor causing changes in the price of crude oil in the past 12 months has been the unrest in the Middle East; it has affected several oil-rich countries and struck fears throughout high oil-consuming nations, it has caused a sharp increase in prices due to fears of the unrest affecting more oil-rich countries.
