Rises in Oil Prices

BUS305 Competitive Analysis and Business Cycles 2011

9 May 2011

Abstract

Oil prices increases and decreases throughout time for a number of reasons. Oil prices are unpredictable but there are a number of factors that can have an effect on oil prices. In this module I will discuss some the reasons prices of oil increase, who the leading countries are that use the most petroleum products, and other factors that cause the price of oil to rise. I will also explain what happens to price and quantity of oil when new technology is invented, production slows down, and what happens if congressional action allows oil-drilling operations in more areas of the Alaska preserve.

Three Factors That Might Explain Why Oil Prices Are High

There are different types of factors that might explain why oil prices rise. There are the short term factors like natural disasters and shut downs of refineries due to regulatory changes, maintenance, and other reasons (Anderson and Buol, 2005). Seasonal changes also affect the rise and fall of crude oil prices from my own personal experience. Different times of the year cause people to travel which in turn causes companies to raise oil prices in order to make an extra buck, but these changes are known to happen every year. These factors only last for so long before operations resume and start producing oil again. We will not focus on these factors as much as the three biggest factors I found while reading, What Is Driving Oil Prices?, that may affect oil prices.

According to Anderson’s and Boul’s research, the three factors that are said to possibly aid in the increase of oil prices are futures prices, enhanced speculation, and supply and demand or the increase in population. Since these three factors seem to be constant every year and steadily show us that they have an increase effect on oil prices, we discuss them.

Investors influence prices by taking larger positions in crude oil futures. This means that...