An investigation into oil prices

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Max Pobol                                                                                                Mr Landor

Economics                                                                                                20 Sep. 04

An investigation into oil prices

Oil is one of the most traded commodities in the world, which is why changes in prices will affect the economy on a global scale and will influence us as individuals and our personal finances. If we were to look at any business in the world it becomes clear that without oil (fuel, gas e.t.c) the business would not function and we begin to see the true importance of it. Many countries would just not even be today if it were not for the discovery of oil, for example Saudi Arabia, a country in which the state of the economy is 99% governed by the export of their crude oil. In 1999 people in the UK went on strike because the price of oil trebled to 30$ a barrel, which managed to sway the British economy for that period. Today the price has further risen to almost 50$ a barrel.

Now the importance of oil has been set we can go on to find out what determines the price. Oil has an unlimited number of uses, and it could be said that it makes the world go around. One of the main uses of oil is for heating. In houses in businesses, in factories, heating is needed everywhere and is initially provided by oil. The majority of people using oil for heating would be households, because people want to keep warm in the winter thus causing an increase in oil demand. And on the other side in the summer households will not require any oil for heating and demand will rapidly decrease. Fortunately this is a trend that the market can prepare for and make adjustments to.

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Although this is a mainly a monopoly market there are a few substitutes to oil that may pose as a threat in the coming future. Other companies are investing in finding environmentally friendly fuel, and we cant forget that there is natural gas that performs almost like petroleum and if these substitutes are reliable and better priced than oil then we may see a shift to these alternatives.

There is also a correlation between the demand for oil and economic growth because oil is an essential in every industry. So when an industry increases in size and wealth they ...

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