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美国作业代写:Crude oil price drop and its impacts

2017-06-20 来源: 51due教员组 类别: Paper范文

下面为大家整理一篇优秀的paper代写范文- Crude oil price drop and its impacts,供大家参考学习,这篇论文讨论了原油价格下跌及其影响。自从2008年的金融危机之后,原油的价格一直保持稳定。直到2014年初原油价格就开始下跌了,而欧佩克对于原油的减产是其最直接的原因。而油价下降,给那些石油出口国带来了巨大的损失。甚至让一些经济疲软的小国直接退出石油市场。

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Description of the problem

Ever since the world’s economy recovered from the financial crisis in 2008, the crude oil price had been kept relatively stable until early 2014. From then on, we can see fromm the chart below, the crude oil price dropped significantly from about $90 to $40 in early 2015. The situation did not improve in 2016 and the oil price dropped to $30 in early 2016. By the summer of 2016, the price finally started to increase from the lowest level. However, we are still far from the level back in 2015.

The reason behind the decrease in price is due to an oligopoly market created by the OPEC (the Organization of Petroleum Exporting Countries). It is a cartel because those member countries work together to decide on the price of crude oil. Together, they can limit the production of oil to rise the price. However, leading countries in the cartel such as Saudi Arabia is trying to instil some discipline for other members in the group. Those with a weaker economy might not sustain the low oil price since their income depends heavily on oil. They will be forced to exit the market.

There are many reasons why a drop in oil price is detrimental to the world economy. It will decrease the level of shale extraction and offshore drilling, further increasing umeployement rate. With a lower oil price, those who depend on oil to make a living will be more likely to default on their debt now that they are poor. Oil exporting countries will lose a significant amount of income now that the price decreased. In short, due to the various impacts, the problem should be considered seriously.

Source: Investing.com

Effects on various countries

Saudi Arabia

Saudi Arabia had its reasons in refusing to cut oil production. Although it will somewhat be hurt by the low price, the two reasons behind its move is more important for them. First, they wanted to instil some discipline for other weaker members in the OPEC. Second, since the US is rising up as a shale oil drilling country, Saudi Arabia wanted to put some pressure for the US. Shale gas, as a substitute for oil, will see a lower demand once the oil price dropped to a sufficiently low level. We need more time in the long run to see whether their strategy worked or not.

Russia

As one of the world’s largest oil producers, Russia’s economy depends heavily on oil prices. According to BBC News, for ever one dollar of drop in oil price, Russian loses about $2 billion. However, even though many believed that Russia has the incentive to increase the oil price by cutting production, the country has decided not to do so because "If we cut, the importer countries will increase their production and this will mean a loss of our niche market," said Energy Minister Alexander Novak. The impact on the Russian economy is severe because it has been forecasted that the economy will enter into a recession and the president had to cut a number of programs. What is more, the interest rate for Russia increased to 17%, such a high level that it will be difficult for Russia to grow its business because it will be too expensive to borrow and lend.

US

One of the reasons why oil price dropped was the increased production of shale drill in the US. However, now that the price dropped, the shale drilling is no longer profitable. Employment in this area will be reduced because it is not profitable anymore. For those regions that depend heavily on oil production, consumer spending growth slowed down and the economy weakened.

Government strategies

Although OPEC countries refused to cut oil production for months, in February 2016, Saudi Arabia, Qatar, Russia and Venezuela finally agreed to freeze oil production if other oil producing countries also agree. This is game theory and the prisoner’s dilemma we have learned in class, if everyone cooperates, the overall outcome will be beneficial for everyone. However, if one country defaults and moves away from equilibrium, then that country alone will be better off while all the other countries will be worse off. In the summer of 2016, we finally see the price of oil going back up by about $10.

Secondly, monetary policy is also important when oil prices fall. Oil importing countries decreased interest rate because of declining current account deficit and lower inflation. This policy can allow the economy to loosen up and encourage more lending and investing activities. Oil exporting countries depreciated their currencies because this can increase trade activities, which can offset some of the loss caused by low oil price. Since the amount of export equals quantity multiplied by unit price, this strategy is aimed to increase the quantity while the price decreases. Although depreciating the currency will not directly increase the oil price, it can somehow decrease the loss when the oil produced was exported.

My recommendations

My first recommendation is that the US lift the oil export ban that have been there for the past few years. Several decades ago, to decrease the fluctuation in oil price, the US government banned oil export except for trade with Canada. Now that oil price is declining and that the US is producing more oil, the government should lift this restriction. With the ban, producers sell oil to domestic users. Now if we can export the oil to other countries, supply in the domestic market will decrease and the oil price in the domestic market will increase. This will partly solve the oil price problem in the US.

My most sincere recommendation is for the OPEC countries to keep their words and agree on a certain level of production so that the price can go back to their normal level. We have learned in game theory that the solution to maximize utility for most countries is for them to keep their words. If one country deviates from the optimal strategy, then this country will be better off while all other countries are worse off. Countries should not be such so selfish and should beware of the overall welfare for the human beings. Only when everyone observes business ethics can the world become better and better.

Conclusion

In conclusion, I believe that based on the government strategies, my recommendations, and the economic theories that we have learned in class, the global oil price will be able to get back to its normal level because the market will eventually get back to equilibrium.

Reference

Bowler, Tim. “Falling oil prices: who are the winners and losers?”BBC News, 19 Jan. 2015. http://www.bbc.com/news/business-29643612

“Crude Oil Futures price.” Investing. 08 Nov. 2016. http://www.investing.com/commodities/crude-oil

Mikulska, Anna. “Falling oil pirce and the oil export ban: why policy action still matters.” Forbes. 22 Dec. 2014. http://www.forbes.com/sites/thebakersinstitute/2014/12/22/falling-oil-price-and-the-oil-export-ban-why-policy-action-still-matters/#5ebf6b7c71c0

Onyanga-Omara, Jane & Bomey, Nathan. “Potential oil output freeze can’t stop oil’s slide”. USA Today. 16 Feb. 2016. http://www.usatoday.com/story/money/2016/02/16/reports-saudi-qatar-russia-venezuela-agree-freeze-oil-production/80440740/

Tverberg, Gail. “Ten reasons why a sustained drop in oil price could be catastrophic.” Oil price. 08 Dec. 2014. http://oilprice.com/Energy/Oil-Prices/Ten-Reasons-Why-A-Sustained-Drop-In-Oil-Prices-Could-Be-Catastrophic.html

Baffes, John. & Kose, M. Ayhan. & Ohnsorge, Franziska. & Stocker, Marc. “The great plunge in oil prices: causes, consequences, and policy responses.” World Bank group, Policy Research Note. Mar. 2015. http://www.worldbank.org/content/dam/Worldbank/Research/PRN01_Mar2015_Oil_Prices.pdf

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