StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Why Oil Prices are dropping - Case Study Example

Cite this document
Summary
The other fact is that the drop has occurred so suddenly, such that it does not follow the conventional economic theories process of price reductions in the markets. Further,…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER96.8% of users find it useful
Why Oil Prices are dropping
Read Text Preview

Extract of sample "Why Oil Prices are dropping"

Why Are Oil Prices Dropping? Presentation of facts The fact under this case is that oil process has dropped to an unexpected low price of $82 per barrel. The other fact is that the drop has occurred so suddenly, such that it does not follow the conventional economic theories process of price reductions in the markets. Further, it is a fact that the price at which oil is currently selling is detrimental to the economies of the oil producing countries. This is because; a country like Saudi Arabia which is the largest oil producer globally would need the prices of the oil to retail at $99.

20, if the country is to break even. The case is even difficult for the countries, considering that for a country like Iran would need the price of oil to remain at $136, if it is to be able to support its growing economy (Al Mulla, n.p.). Determination of major issuesThe major issue in this case is the reason why oil prices are dropping (Al Mulla, n.p.). This is a major issue, due to the fact that the dropping of the oil prices is sudden and also unexpected. The other major issue in this case is why the oil producing countries are not doing anything to correct the issue of dropping oil prices.

Considering that the low process for oil is in fact harmful to the economies of these countries, it is expected that the oil producing countries should be doing something by now, to see the prices of oil increase to levels that can benefit their economies.Identification of applicable theoriesThe economic theory of demand and supply is applicable in this case. The theory states that when the supply is high, the prices of a commodity are low. However, when the supply is reduced, the demand for the commodity in the market increases, and with high demand in the market, the price increases.

AnalysisAccording to the economic theory of demand and supply, the oil producing countries are able o to see an increase in the prices of oil. This is because, the prices f oil are currently low, which then means that those countries can cut their supply of oil into the global markets to increase its demand, and consequently its price. However, as the case has turned out to be, the oil producing countries are not cutting down their oil supply into the market in order to increase demand and prices of oil.

In this respect, it can therefore be observed that the conventional economic law of demand and supply is not operating in this case.ConclusionThe conclusion in this case is that the reason for the dropping oil prices is not the normal operation of demand and supply forces in the oil market. There are other unrelated factors that are accounting for this occurrence.AlternativesThe theory of competitive rivalry provides that a market player can intentionally cause the prices of commodities in the market to fall below the equilibrium price, for the sake of hurting and driving away its competitors.

In this case, it is possible that the oil producing countries are deliberately dropping the prices of oil, in order to hurt the U.S. shale oil production, and thus drive it away as a new competitor seeking entry into the oil production market (Al Mulla, n.p.). Works CitedAl Mulla, Habib. Why Are Oil Prices Dropping? Forbes, November 24, 2014. Available at”: http://www.forbes.com/sites/realspin/2014/11/24/why-are-oil-prices-dropping/

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Why Oil Prices are dropping Case Study Example | Topics and Well Written Essays - 500 words”, n.d.)
Why Oil Prices are dropping Case Study Example | Topics and Well Written Essays - 500 words. Retrieved from https://studentshare.org/business/1694618-why-oil-prices-are-dropping
(Why Oil Prices Are Dropping Case Study Example | Topics and Well Written Essays - 500 Words)
Why Oil Prices Are Dropping Case Study Example | Topics and Well Written Essays - 500 Words. https://studentshare.org/business/1694618-why-oil-prices-are-dropping.
“Why Oil Prices Are Dropping Case Study Example | Topics and Well Written Essays - 500 Words”, n.d. https://studentshare.org/business/1694618-why-oil-prices-are-dropping.
  • Cited: 0 times

CHECK THESE SAMPLES OF Why Oil Prices are dropping

The Logistics Activities of a Organization or of a Business

It is possible to establish how a business is able to create a profitable record by effective logistics and concentration on the delivery of desirable products in a “no-fuss” way and at competitive prices, to the average consumer.... nbsp; The central topic of this paper is the logistical activities involved in the retail sale of vegetable oil by Food Basics.... Vegetable oil will be considered on two levels: locally and internationally prepared canola oil; and internationally produced olive oil, as stocked by Food basics stores, and carried under their in-store labels....
6 Pages (1500 words) Research Paper

Marginal Concept

Gas prices are already on the rise due to the increasing cost of oil production and fluctuating prices.... Extraction would require very expensive technology and this would in turn increase oil prices.... Not to mention that the constant war in the Middle East negatively affect the oil prices.... An increase in oil prices leads to an increase in many other costs such as production costs, transportation costa, the cost of goods and services and this increase in costs lead to higher rates of inflation....
3 Pages (750 words) Case Study

BUS305, Competitive Analysis and Business Cycles Mod 3 Case Assignment

The goal or purpose of OPEC, an international cartel, is to control the production of oil and to establish favorable oil prices for the member nations.... By competing in the market for the product with other suppliers, the Florida citrus industry through the FDOC seeks to provide the quantity and quality of the agricultural product in the market at competitive prices.... According to the Economics Dictionary, the Organization of Petroleum Exporting Countries is an organization of about a dozen nations that sell oil to other nations....
4 Pages (1000 words) Essay

The Alternatives for Oil

For OPEC to monitor the limited supply of oil, it would need to adjust its oil prices based on the needs of its various consumers and how much supply is needed to be given.... nbsp; … Inviglio said that “every hybrid, plug-in, and electric vehicle sold means fewer gallons of oil burnt.... nbsp; The Alternatives for oil oil is practically applied and necessary for various activities such as transportation of goods and traveling from different locations or keeping energy needs to maintain power needs of cities and towns....
1 Pages (250 words) Assignment

Local Competition of the Supor Company

In 2004, it was listed on the Shanghai Stock Exchange and from 2006; the French firm Groupe SEB owned 71.... 1% of Zhejiang Supor's equity, while Supor Group held… The company begun as a manufacturing expert in pressure cookers and later grew to become the leading homeware dealer through provision of stove top cookwares and different kinds of kitchen utensils....
6 Pages (1500 words) Essay

Why do oil prices keep falling

One of the reasons for the falling oil prices in Japan and India is the increased production of oil in America through hydraulic fracturing of shale formations and has reached the highest level of production in 30 years resulting in high oil supply resulting in reduced oil… The other reason for the fall in oil prices is the decrease in demand in consuming countries owing to the insipid growth of the economy.... Another reason for the fall in oil prices is the determination by OPEC not to reduce the production of oil as a measure of propping the Reasons for the falling oil prices in Japan and India One of the reasons for the falling oil prices in Japan and India is the increased production of oil in America through hydraulic fracturing of shale formations and has reached the highest level of production in 30 years resulting in high oil supply resulting in reduced oil prices....
1 Pages (250 words) Essay

The Main Reason for the Dropping Gasoline Prices

To sustain their production, oil producers decrease the oil prices with the objective to retain relevance in the global market.... The fall of global prices was also influenced by the decision by OPEC not to manipulate oil prices and oil production (Plumer 1).... The drastic price changes has been a global experience the… In an argument by Plumer the world has seen a decrease in fuel changes drastically as main producers of oil have quoted minimal prices as compared to a year back (1)....
2 Pages (500 words) Essay

Price drop of crude oil

This is basically because the small companies cannot actually apply such strategies of buying buffer stock when the prices are favorable.... As a result, the American oil output could be adversely affected in the recent years due to low oil prices offered by the OPEC countries.... In addition, OPEC also outlines that the lower global oil prices may have affected the marginal barrel output from other sources, such as shale.... Body Paragraph 5: Smuggling and other illegalities in the marketLastly, another possible factor for the declining oil prices is the presence of a large number of smugglers....
2 Pages (500 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us