Finance Assignment

a. Explain the drivers that impact the price and supply of oil.

Answer: The drivers that may impact price and supply of oil are oil prices based on input from supply and demand, natural gas prices, oil and gas reserve growth based on the new finding or further development costs, exploration and production costs, and on refining margins. Oil prices are affected by demand at the global level. The factors that impact demand for oil are based on global economic conditions. With our U.S. economy being the largest oil consumer, our economic growth or recessionary situation has a direct impact on the price of oil. Demand for oil varies across industries but primarily used for transportation, industrial, residential, generation of electricity, and for commercial uses. As the world economy changes and is affected by developing nation, oil prices change. A change in world economic growth directly affects the oil prices. The opposite is true also. As global economic growth decreases, so does the price of oil. Both of these determine the global supply and demand of oil prices at the local levels.

On the supply curve, developing new oil is time consuming and restricted until the supply levels from the new discovered sources are fully developed and ready for consumption. Factors affecting the supply side range from world production available, to the crude oil reserves, and to numerous geopolitical conditions the producers around the globe face. OPEC basically determines the world oil production and increases or decreases output based on what is profitable for its member states. As the slides inform us, OPEC has kept demand and supply levels evenly matched. This gives an advantage to the OPEC member states whose storage capacity allows them to minimize financial losses when economic conditions affect oil prices. In other words, OPEC can increase or decrease production or release storage capacity to keep profits reasonable. For those non-OPEC members, this creates a...