The paper "The Low-Cost Airline Model" is a great example of marketing coursework. Oil price determinants are complex. However, as it is with other commodities, the demand and supply of oil in the world has a significant effect on the prices. In the supply end, the Organisation of Petroleum Exporting Countries (OPEC) acts as the main price swinger. OPEC member countries can deliberately decrease or increase oil production and supplies to influence the price of oil in the world market (World Bank 2015, p. 157). Demand also has a significant effect on oil prices.
As would be expected, a high demand against limited supply would lead to increased prices and vice versa. In the recent past, for example, Sill (2007, p. 22) indicates that the supply of oil has been higher than had been anticipated, while the demand has also been lower than was projected. Combined, the high supply and low demand have led to low oil prices. One of the contributors to increased oil supplies was the shale oil production in the US, which in 2014, accounted for an estimated one percent of the global oil supply.
Slow economic growth on the global front has also led to reduced oil demands in the same way as increased energy efficiencies, which result in oil users getting greater value from the same amount of oil compared to several years ago. The World Bank (2015, p. 158) indicates that macroeconomic factors affect oil prices in three main ways. They include slow economic activity, real income shifts, and fiscal and monetary policies. During and after the 2008/2009 economic crisis, most global economies slowed.
Because oil acts as feedstock in different sectors of the economy, the slow economic activity meant that the demand for oil declined. Deloitte (2012, p. 3) specifically indicates that global economic activity affects the demand for oil globally. Intense economic activity translates to a higher demand for oil, which theoretically leads to oil price increases, especially when supply is limited. Real income shifts have an indirect effect on the price of oil. Real income is adjusted for inflation, hence meaning that unless there are income increments in an economy, people in an economy where inflation is high will most likely spend less on consumer items (including oil).
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