Free Essay: Factors Affecting Demand and Supply of oil
In 2009 over 84,249,000 barrels of oil was consumed per day around the world. Oil is the major source of energy from most of the developed as well as developing countries around the world. Therefore a change in the supply of oil will significantly affect operations in most parts of the world. There are a number of factors that affect the demand and supply of oil in the world.
Available oil reserves
Engineers regulate the amount of oil that can be harvested from oil reserves. Through advanced technological methods they are able to determine how much oil will be produced from given reserves without causing a depletion of the same. Once excavation has been conducted successfully, the engineers check to find out the potential of give oil reserves. Once a given reserve has been exploited to the maximum the explorers find other reserves to be able to meet the great global oil demand.
Environmental factors will affect the supply and demand for oil. Natural catastrophes like hurricanes and earthquakes can disrupt the flow of crude oil. When the supply of oil is limited, there are a lot of economic as well as social activities that stall.
The consumption rate of oil affects both supply and demand. The demand for oil is highest in developed countries. The United States, China, Japan are some of the countries with the largest demand for oil.
Technological advancements have increased the need for more oil. On the other hand the improvement in technology has enabled engineers to find ways to increase the production of oil. With new technology, oil companies have been able to excavate and discover oil in many regions around the world.
Political factors also affect the supply and demand for oil. Especially in developing countries there are limited resources for the excavation of oil. Foreign oil companies therefore carry out the oil excavation in such countries. This obviously presents a lot of political dynamics. Political scuffles arise when the natives feel that foreigners are exploiting their resources. This will affect the supply of oil in such areas.
Political factors may also arise when citizens fight for limited oil reserves. There are countries that are warring as a result of scuffles caused by limited oil resources. The Middle East owes some of its political instability to the presence of oil in the region. Although the demand for oil increases with technological advancement, an unfavorable political environment hampers supply.
Oil is traded using the dollar in the global market. Depreciation in the value of the dollar increases the demand for oil. The open opens up as people rush to get the commodity at a fairer price. Conversely, when the dollar strengthens the demand for oil slightly drops. This is because the commodity will be trading at a slightly higher price.
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