Sample Report On Decrease Of Commodity Prices (Crude Oil)

The key insight for the decrease of commodity prices for products such as crude oil is that such prices decreases occur with respect to economic fundamentals but not ceteris paribus. This paper explicitly explores the general causes and effects of price decreases for crude oil as well as highlighting the aspect of demand and supply behind this. The basic cause of price decreases boils down to the economies of demand and supply. Basically, the price of crude oil is determined by demand and supply curve as indicated below:
When supply for oil increases, the supply curve shifts from left to right and at the same time, the demand curve shifts from right to left. The price of crude oil is determined at the intersection of the supply and demand curves. The shifting demand and supply curves means that the new price is lower than the initial price. Thus the concept here is that increased supply leads to decreased oil prices.
The main causes of price decreases for crude oil are weak demand in many countries as a result of recession and insipid economic growth, rising US production of oil as well as the fact that Oil Cartel, OPEC is not determined in any way to lower production so as to shift prices upwards. In the United States of America, the production of oil has doubled over the last years and this has meant that oil imports into the country ought to look for new homes. Nigeria, Algeria and Saudi are well known for crude oil production and have been selling oil to other countries including the US but domestic production of oil in the US has pushed them out and are competing for Asian markets. This means that the supply of oil has increased reducing the demand and hence producers are forced to drop the prices.
Oil fluctuations date back to 1973 and have been largely explained by shifts in the demand curve for crude oil where by economists assert that the demand for oil is a function of the changing economic growth. This can explain why there have been unpredicted decrease in oil prices since it is hard to predict the economic growth or the Gross Domestic product (GDP) of a country.
Technological advancements have also altered the supply of crude oil. When the price of oil goes up, people invent new technologies aimed at conserving fuel or applying new oil sources to produce more oil and this also pushes prices back down. Recession and poor economic growth also causes the collapse of oil prices.
Decreased prices of crude oil has positive and negative effects and this depends on the loser and winner. For instance, for the crude oil exporting nations, price decreases leads to significant shortfalls in terms or revenues and hence they become the loser. On the other hand, consumers in the importing countries gain since they pay less to acquire fuel. Russia is one of the major producers of oil and its economy depends much on revenues from energy. Statistics show that Russia makes a loss of about $2 billion in terms of revenues when there is a fall in price in terms of a dollar. During periods of crude oil price decreases, some oil producing companies are forced to shut down operations so as to help reduced the increased supply in the market. This leads to loss of employment as well as loss of revenues for such governments. For example, in Saudi Arabia, the world’s largest oil exporter, there are strategies put in place to ensure that they force some higher cost producers of oil to shut down production and resume back once the prices stabilize.