欢迎来到51Due,请先 | 注册
关注我们: 51due论文代写二维码 51due论文代写平台微博
英国论文代写,英国essay代写知名品牌微信

Paper代写范文

为您解决留学中生活、学习、工作的困难、疑惑
释放自我

paper代写-Crude oil price drop and its impacts

2017-09-28 | 来源:51due教员组 | 类别:Paper代写范文

本篇paper代写-Crude oil price drop and its impacts讲了自2008年全球经济复苏以来,原油价格一直保持相对稳定,2014年后原油价格从90美元大幅下滑至40美元,2016年情况继续恶化,2016年初油价下跌至30美元。本篇paper代写由51due代写平台整理,供大家参考阅读。


Description of the problem

Ever since the world’s economy recovered from the financial crisis in 2008, the crude oil price had been kept relatively stable until early 2014. From then on, we can see fromm the chart below, the crude oil price dropped significantly from about $90 to $40 in early 2015. The situation did not improve in 2016 and the oil price dropped to $30 in early 2016. By the summer of 2016, the price finally started to increase from the lowest level. However, we are still far from the level back in 2015.

The reason behind the decrease in price is due to an oligopoly market created by the OPEC (the Organization of Petroleum Exporting Countries).  It is a cartel because those member countries work together to decide on the price of crude oil. Together, they can limit the production of oil to rise the price. However, leading countries in the cartel such as Saudi Arabia is trying to instil some discipline for other members in the group. Those with a weaker economy might not sustain the low oil price since their income depends heavily on oil. They will be forced to exit the market. 

There are many reasons why a drop in oil price is detrimental to the world economy. It will decrease the level of shale extraction and offshore drilling, further increasing umeployement rate. With a lower oil price, those who depend on oil to make a living will be more likely to default on their debt now that they are poor. Oil exporting countries will lose a significant amount of income now that the price decreased. In short, due to the various impacts, the problem should be considered seriously. 

 

Source: Investing.com

Effects on various countries

Saudi Arabia

Saudi Arabia had its reasons in refusing to cut oil production. Although it will somewhat be hurt by the low price, the two reasons behind its move is more important for them. First, they wanted to instil some discipline for other weaker members in the OPEC. Second, since the US is rising up as a shale oil drilling country, Saudi Arabia wanted to put some pressure for the US. Shale gas, as a substitute for oil, will see a lower demand once the oil price dropped to a sufficiently low level. We need more time in the long run to see whether their strategy worked or not.

Russia

As one of the world’s largest oil producers, Russia’s economy depends heavily on oil prices. According to BBC News, for ever one dollar of drop in oil price, Russian loses about $2 billion. However, even though many believed that Russia has the incentive to increase the oil price by cutting production, the country has decided not to do so because "If we cut, the importer countries will increase their production and this will mean a loss of our niche market," said Energy Minister Alexander Novak. The impact on the Russian economy is severe because it has been forecasted that the economy will enter into a recession and the president had to cut a number of programs. What is more, the interest rate for Russia increased to 17%, such a high level that it will be difficult for Russia to grow its business because it will be too expensive to borrow and lend.

US

One of the reasons why oil price dropped was the increased production of shale drill in the US. However, now that the price dropped, the shale drilling is no longer profitable. Employment in this area will be reduced because it is not profitable anymore. For those regions that depend heavily on oil production, consumer spending growth slowed down and the economy weakened. 

Government strategies

Although OPEC countries refused to cut oil production for months, in February 2016, Saudi Arabia, Qatar, Russia and Venezuela finally agreed to freeze oil production if other oil producing countries also agree. This is game theory and the prisoner’s dilemma we have learned in class, if everyone cooperates, the overall outcome will be beneficial for everyone. However, if one country defaults and moves away from equilibrium, then that country alone will be better off while all the other countries will be worse off. In the summer of 2016, we finally see the price of oil going back up by about $10.

Secondly, monetary policy is also important when oil prices fall. Oil importing countries decreased interest rate because of declining current account deficit and lower inflation. This policy can allow the economy to loosen up and encourage more lending and investing activities. Oil exporting countries depreciated their currencies because this can increase trade activities, which can offset some of the loss caused by low oil price. Since the amount of export equals quantity multiplied by unit price, this strategy is aimed to increase the quantity while the price decreases. Although depreciating the currency will not directly increase the oil price, it can somehow decrease the loss when the oil produced was exported.

My recommendations

My first recommendation is that the US lift the oil export ban that have been there for the past few years. Several decades ago, to decrease the fluctuation in oil price, the US government banned oil export except for trade with Canada. Now that oil price is declining and that the US is producing more oil, the government should lift this restriction. With the ban, producers sell oil to domestic users. Now if we can export the oil to other countries, supply in the domestic market will decrease and the oil price in the domestic market will increase. This will partly solve the oil price problem in the US. 

My most sincere recommendation is for the OPEC countries to keep their words and agree on a certain level of production so that the price can go back to their normal level. We have learned in game theory that the solution to maximize utility for most countries is for them to keep their words. If one country deviates from the optimal strategy, then this country will be better off while all other countries are worse off. Countries should not be such so selfish and should beware of the overall welfare for the human beings. Only when everyone observes business ethics can the world become better and better.

Conclusion 

In conclusion, I believe that based on the government strategies, my recommendations, and the economic theories that we have learned in class, the global oil price will be able to get back to its normal level because the market will eventually get back to equilibrium.  

Reference

Bowler, Tim. “Falling oil prices: who are the winners and losers?” BBC News, 19 Jan. 2015. 

“Crude Oil Futures price.” Investing. 08 Nov. 2016. 

Mikulska, Anna. “Falling oil pirce and the oil export ban: why policy action still matters.” Forbes. 22 Dec. 2014. 

Onyanga-Omara, Jane & Bomey, Nathan. “Potential oil output freeze can’t stop oil’s slide”. USA Today. 16 Feb. 2016.

Tverberg, Gail. “Ten reasons why a sustained drop in oil price could be catastrophic.” Oil price. 08 Dec. 2014. 

Baffes, John. & Kose, M. Ayhan. & Ohnsorge, Franziska. & Stocker, Marc. “The great plunge in oil prices: causes, consequences, and policy responses.” World Bank group, Policy Research Note. Mar. 2015. 

Summary for the presentation

Ever since 2 years ago, oil price has dropped dramatically, from about $100 to $30. The reason behind this price drop is the oligopoly in the OPEC in the Middle East. Those countries had disagreements over the price and supply of oil. As a result, Saudi Arabia, one of the strongest countries in the cartel, increased the supply of oil to drive down the price. If those countries who are not strong enough economically and they heavily depend on oil to survive, they will no long be able to cope with the price. What is more, the US increased shale gas supply, a substitute for crude oil. If oil price is low, consumers will turn to oil instead of shale gas. Saudi Arabia can give a warning to those other OPEC countries and put some pressure in the US by decreasing the oil price deliberately.

The impact on most oil export countries, such as Russia, was negative because their economy depended heavily on price export. With lower price, they will profit less and will see an increase in unemployment rate.

The governments in the OPEC have finally agreed to decrease production in February 2016. This is the most direct cause for oil price decrease and this policy will solve the problem directly because as we have learned before, the price increases when the supply curve shifts to the left. Secondly, monetary policy is also important when oil prices fall. Oil importing countries decreased interest rate because of declining current account deficit and lower inflation. Oil exporting countries depreciated their currencies because this can increase trade activities, which can offset some of the loss caused by low oil price.

My first suggestion is that the US lift the oil export ban because it can decrease domestic oil supply and increase domestic oil price. My second suggestion is for the countries in the cartel to keep their words and do not deviate from the equilibrium state. The key of oligopoly is for everyone to be trust worthy so that the production level and price level can get back to the normal state.


要想成绩好,英国论文得写好,51due代写平台为你提供英国留学资讯,专业辅导,还为你提供专业英国essay代写,paper代写,report代写,需要找论文代写的话快来联系我们51due工作客服QQ:800020041或者wechat:Abby0900吧。—Ace

我们的优势

  • 05年成立,已帮助上万人
  • 24小时专业客服
  • 团队成员都毕业于全球著名高校
  • 保证原创,支持检测

英国站