Question

OIL MARKET

1. What is the structure of the oil market?
2. What factors affect oil demand?
3. What factors affect the supply of oil?
4. What war is there between the oil exporting countries?
5. What role does the US play? And China?

Answer 1

1.The market structure of oil market is oligopoly. Because oil market consist of few sellers are existing.There are associations or cartels of oil market firms like OPEC to determine price and quantity.

2.a)The main factor affecting demand of oil is.Strong economic growth and industrial production tend to boost the demand for oil.

b) Alternative energy sources:An increased awareness of the benefits of renewable energy sources such as solar and wind could see a decline in the world’s reliance on oil.

c) Market speculation:Oil prices are set on the futures markets, which means that market speculation about future events could impact oil’s price.

d) Strength of US dollar:If the dollar becomes stronger, then the price of oil will tend to drop – at least nominally – assuming that all other factors remain constant.

e) Other important factors that affect demand for oil include transportation (both commercial and personal), population growth, and seasonal changes. For instance, oil use increases during busy summer travel seasons.

3.a)OPEC: Cartel is formed by countries in OPEC to regulate the price of oil by controlling supply.OPEC have done this because although oil is a finite resource, many countries have access to their own oil fields and means of production. As such, OPEC was formed to protect against a race to the bottom in terms of prices, which would have resulted in rapid depletion of these countries’ reserves. Therefore, OPEC was formed to regulate oil production via quotas, which ensures members get a good price for their oil even if this means producing less in the short term.

b. Exogenous shocks: Events that economics cannot explain or control, such as natural disasters, war and geopolitical instability can all impact the supply of oil.

d.Non OPEC oil producing countries like America, china etc.

4.The trade war occurs between China and USA. The USA imposes tarriffs on imported products from China. As a result China imposes tarrif for American products. The China is world's largest consumer of oil and USA is one of largest exporter. So these tarrif affect the price of oil, because of decrease of oil sales to China due tarriff..

5.USA is the world's top consumer and largest producer of oil. So it has the ability to influence and control price and oil supply in the market.

Initially China was exporter of oil, but they latter depends on import of oil and become largest importer of oil to increase in demand more than domestic production.