The paper 'The Major Determinants of Oil Price in the Long Run' is a great example of business coursework. Since June last year, oil prices have reduced by 40% and have declined to be restored. It is a norm nowadays that the energy demand is closely related to economic activity in counties found in the southern hemisphere. Supply is also affected by weather and geopolitical unrests and rises. A constant high price of oil encourages producers to invest more. This causes lag which boosts supply. The decrease in oil prices has been affected by four major reasons.
The oil demand has reduced. This is because individuals rely on other forms of energy rather than just oil alone due to efficiency (Zanoyan 1986, p. 92). Secondly, the combination of Iraq and Libya, the turmoil produces four million barrels per day has not affected oil output. Thirdly, America becoming the world’ s largest oil producer reduced the demand for oil in that country as it imports very little oil. It also does not export crude oil hence creating much spare supply in the oil in the world (Powers 2012, p.
239). Lastly, the Middle East countries have refused to sacrifice their own market share to bring back oil prices as before. These four major factors are the cause of the slumping of oil prices being experienced worldwide. Demand, supply, and expectation are the major determinants of oil price in the long run. Market expectations and sentiments in the short run also determine the prices. The world is facing energy descent, the oil demand has fallen, and the energy transition where people are not relying on oil as the only source of energy.
Substitutes like shale gas and synthetic oil are causing the decline of oil prices majorly. Determination of oil prices According to Poghosyan and Hesse (2009), the cost of crude oil determines majorly the price of oil products in the long run. In addition, recently, marketplace forces from the competition, supply, and demand have also influenced the prices in the market significantly.
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