Where is all the oil?

1) Explain why oil prices have been rising. Use a diagram to illustrate your answer.
The oil prices have been rising due to inflation, as well as to the always rising demand. The weak dollar has caused the prices to rise as the explanation is that the costs have also risen due to inflation and exchange rates. The prices recently have actually rocketed, this year, going from only 80 a barrel to peaking 110 dollars in april. The chart below shows you the prices of oil for the last year, as it is noticeable we have reached a peak in April which in my opinion was due to the massive quantitative easing the U.S. government has done.

2) How can the concepts of price elasticity of demand, income elasticity of demand and price elasticity of supply help to explain the magnitude of oil price movements?
Since OPEC is controlling most of the worlds's oil supply and the most of our cars and heating is powered by oil, the prices elasticity is very low. If there was an oil crisis and there would be no more oil supplied the whole world would go into chaos since we are not ready to convert to other sources of energy, we are slowly getting there but we still have a long way to go. Oil is not a energy source that can be substituted easily, unfortunately the modern society is dependent on oil.

3) Examine what is likely to happen to oil prices over the coming months. What are likely to be the most important factors in determining the direction and size of the price movements? Distinguish between demand-side and supply-side effects in your answer.
Well I predict that the prices of oil will rise due to a winter coming up. Although the OPEC has agreed mainly to the prices to stay between 80-90 for a barrel of crude oil, I do believe they will want to make a profit fromt he rising demand after the crisis. The main factor of the prices will still be the dollar, if its inflation will keep on droppin the prices will be getting more and more expensive, although if the dollar strengthens itself I believe the prices will stay the same.

4) What are ‘crude futures’? Explain how actions in the futures market are likely affect spot prices.
I believe the prices of oil will stay strong for another couple years, a decade or two. Although with advances in technology and inventing new alternative sources and advancing in the current alternative sources like solar power or electric powered cars, we will be able to stop being dependent of oil. This will make the OPEC countries economies drop massively the day the world stop using 90% of its energy from oil.

5) To what extent can OPEC control oil prices?
OPEC is very powerful in controlling oil prices since those countries are the main suppliers of oil. If they would want to they would be able to stop pumping oil and the whole world would be doing what they want. Since OPEC is the backbone of the oil business. They do whatever they wish as Sieminski chief economist in Deutsche Bank.

6) If crude oil prices go up by x%, would you expect petrol station prices to go up by approximately x%, or by more than or less than x%? Explain.
If the crude oil prices would go up by x% the prices at the stations would go up by at least 10% more than the increase in crude oil, since the companies also have to pay for transport and other capital that uses up oil. The tax will rise on oil as well and all those will make the oil for the average consumer increase much more than the oil on the market.

7) Why have central heating oil prices risen by around 70% of over the past three months? What are the implications of your answer for the type of market structure in which central heating oil companies are operating?
They have risen over the 3 months due to the companies seeing profit in rising them. The prices have risen during the cold months leading to people needing to heat, that was a great opportunity for the oil companies to make much more profit. It is said that the prices of heating oil go head to head with crude oil although this time the prices of heating oil rose 70% and the prices of oil only 17%... Interesting right?

What do you think?
Erlach