DRIVING FORCES OF OIL

Driving Forces of Oil

Table of Contents

INTRODUCTION1

LONG TERM DRIVING FORCES2

Income2

Technology2

Investment3

SUBSTITUTES3

Coal3

Renewable Energy3

Other substitutes4

DRIVING FORCES OF THE OIL INDUSTRY4

Price Elasticity5

Demand of Gasoline and Coal5

OPEC & Oil Reserves6

CURRENT SCENARIO6

FUTURE PROJECTIONS7

CONCLUSION8

REFERENCES9

APPENDIX10

Driving Forces of Oil

Introduction

The world oil market started growing in 2003. It has been on the boom since then and in 2004 and 2005 the oil market reached its highest. The growth of the product oil caused prices of other commodities to rise, as well. The consumers, as well as, the business community were adversely affected by the growing prices of the oil market because the prices of this product impact the prices of this product, as well (Watkins and Streifel, 1998).

Policy responses depend on the conditions of the world oil market. These factors push the market to the current levels that are permanent or temporary. The oil industry is very volatile which means that the prices of oil can move very frequently and these changes are impacting the demand and supply of the market. The demand and supply of oil depends a lot on the prices of the market and the conditions of the market. People whose businesses and daily activities depend on oil, face huge risk because the prices of oil fluctuate a lot. The past trends suggest that people should not depend too much on the prices of oil.

The demand and supply of this product is impacted by the price of the product. This paper will explore the long term economic incentives that affect the demand and supply of the product. Factors like income, technology, investment etc. are the driving factors of the demand and supply of oil. These are the long term factors. The short term factors that impact the supply and demand of the product are the political factors, weather conditions of the country, changing trends etc (Dahl and Sterner, 1991).

Long Term Driving Forces

There are a lot of forces that impact the production and price of oil. These factors then impact the demand and supply of the product. One reason behind the change in prices is the change in demand and supply, as well. If we consider simple economics, we can say that when the demand is more than the supply the price of the product will increase because the people are demanding a product that is not supplied, but the demand is still there. Other factors that impact the oil prices are as follows:

Income

The income of people also impact the production and price of the oil. People consume according to their income; therefore, the consumption of oil depends on the income of people (Dahl, 1993). People who have high income will obviously be able to consume more and will have no impact even if the prices of the product increases. People, who are earning low, cannot afford the frequent change in price; therefore, their consumption is affected.

Technology

The use of technology impacts the demand and supple of oil. Nowadays, every process is computerised which means that everything is dependant on ...