You are to write a report on the supply and demand of oil.
The price of oil is determined by supply and demand. The price of oil has been steadily hovering around the $100-$120 per barrel mark for many years. Suddenly towards the end of 2014, the price of oil took a downturn and has been dropping ever since. In March 2016, oil has fallen to around $38 per barrel (a fall of over 60%).
a) Based on your understanding of the economic theory of supply and demand, describe why the price of oil has continued to fall so much even though the consumption of oil has not decreased substantially.
b) With oil price falling, there will be some countries that will benefit and some countries which will lose out. How would the fall in price of oil affect the economies of:
i) huge oil importing countries such as China or India?
ii) huge oil exporting countries such as Saudi Arabia or Iran?
iii) huge amount of oil of its own but has a big domestic consumption of oil such as USA or Indonesia?
c) Obviously with the huge fall of oil, there will be winners and losers at the business/industry level. Identify and describe:
i) the businesses/industries likely to benefit from the fall of oil.
ii) the businesses/industries likely to lose out from the fall of oil