View source for Long Term Theories and Short Term Factors

[[In Conclusion...]]
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[[Oil: Post 9/11]]
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[[Logistics and Statistics]]
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==Long Term==

===Multiple Equilibrium===

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The theory of the Supply and Demand graph of Oil having multiple equilibri revolves around the fact that oil producing countries see oil, a finite commodity, as a an investment.  When the demand for oil increases drastically, as it has over the last five years, the oil producing countries reduce their levels of output to ensure their commodity will last longer.  By doing this, the price of oil rises to the higher point of equilibrium.  By going from the lower equilibrium to the higher, the price of oil passes through an unstable equilibrium.  This point is unstable due to the fact that both the supply and demand curves both have the same slope at this point.  Due to the fact of its instability, the price does not stop at this point, but continues on its path to the higher equilibrium.  This theory explains why the price of oil collapses when the World demand decreases and why the price sharply increases with the slightest increase in demand.

===Rapid Demand versus Limited World Supply===

As just stated, the supply of oil is a finite commoditity.  Experts have stated that the world has been drilled to the maximum and there are no more oil reserves to be found.  With the world's supply of one of its most valuable resources facing the threat of being used into extinction, the countries that produce this commoditity are naturally going to try to reduce the amount of this commoditity and in turn, allow the commoditity to last a little longer.  In addition to the supply problems, the rest of the world is starting to demand more oil than ever before.  The rising Asian markets have accounted for nearly 40% of the increase in world's oil demand.  With these two factors competing for the same commoditity, it is only natural that the price of oil would sky rocket.

===OPEC's Market Corner===

Recent circumstances within the global market have given OPEC the ability to create a market corner on the supply of oil.  A market corner exists when an industry proceeds to buy their given commodity in large amounts to keep from going into the market.  In doing this that industry can store the goods and only allow a small amount of that good to go to market driving the price up and making a large profit.  Although OPEC has not bought the world's supply of oil, circumstances have allowed them to control the amount of oil that is on the market currently.  A market corner can be broken however, if another player in the economy releases more of that supply to market.  The United States could potentially bring the price of oil down if it were to release reserves into the oil market.  By introducing the amount of barrels/day that OPEC is not, the United States could ultimately send the price down to where it would be before the market corner.

===Reserves===

Since September 2001, the supply of world oil is depleting more and more.  The level of new discoveries of the world oil has progressively gone down and many are worried that the resources will inevitably run out.  Many oil reserves remain untapped because of this decline in the level of discoveries.

*Proved reserves are those quantities that geological and engineering analyses suggest can be recovered with high probability under existing technological and economic conditions.
*As the production of oil moves forward, the level of proved reserves declines: with new oil discoveries, recovery technologies are improved; since there is a decline in the new oil discoveries, these technologies remain unchanged with no major innovative advantages.

Over the past decade there has been little change in the reserve to production ratio, suggesting that, at least for now, long term forces are not driving up the price of oil.

===Peak Oil Theory===

Again, here we see how this idea of the final depletion of the world’s oil resource is shown. 

*Peak oil is a phrase that assumes that oil reserves are not replenishable and predicts that future world oil production must inevitably reach a peak and then decline as these reserves are exhausted.

The phrase Peak Oil is a shorter way of naming the Hubbert Peak Theory
*This theory shows that the rate of petroleum production tends to follow a bell-shaped curve.


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*Early in the curve? production rate increases due to the discovery rate.

*Late in the curve? production rate declines due to resource depletion.

*Also, the Hubbert Peak Theory shows how to calculate the point of maximum production in advance based on discovery rates, production rates and cumulative production.

==Short Term==

Throughout the history of America's oil consumption there have been many events that have affected the price of oil. These events usually have not affected the price in the long run but have often temporarily caused the price of oil to increase.


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===War and Conflict===

*War on Terrorism in Iraq causes uncertainty that the United States would be supplied with oil from its largest distributor. The Middle East is the world's largest distributor of oil and when its oil fields are battle grounds it creates uncertainty within the market therefor pushing prices upward due to speculation.

*The conflict with Venezuela affects the short term increase in the price of oil because of the constant negotiations between the United States and Venezuela about supplying oil to the United States. Venezuela has started to deny oil exports to the United States and specualtors use this to bid up the price of oil. This only effects the price in the short term because the United States imports oil from several other countries.

===Natural Disasters===

*Hurricanes and other natural disasters, such as Hurricane Katrina in the southern United States affected the price of oil in the short run due to a shortage in resources, a lack of transporatation and power outages in the Gulf Coast region preventing the trade of oil.




[[In Conclusion...]]
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[[Oil: Post 9/11]]
|
[[Logistics and Statistics]]