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Oil - Research Paper Example

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Name Instructor Course Date Fundamentals of the oil industry The global economy has over the past decades depended on oil as the key source of energy for domestic use and industrialization. Even in the current economic policies with alternative source of energy in nuclear technology and the traditionally used coal, Oil still remain the primary energy source for the world…
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Oil

Download file to see previous pages... The question that would equally be important to answer is the impact of alternative sources of energy on oil dependency and the aggregate global economy (Gudmestad,et al. 34). Oil industry is one of the strongest among other industries due to the significant power it wield in global economic activities. It is equally important to underline the geopolitical aspects of its production which is limited to some parts of the world. It is a common knowledge that the leading oil cartel is OPEC with a strong bargaining power in the international petroleum oil market (Omeje 168). The Dollar strength is significant shaken by oil prices and this is a key factor that proves the influence of oil industry in social, economic and political decisions made by governments and the private sector. There has been an increasing campaign for alternative source of fuel for powering vehicles and it is imperative that a critical analysis is undertaken to this effect to establish the possible consequences this would have in the economy and Oil industry. Recent Oil prices have shown a sharp volatility that began in 2008 across the world. In this regard, it is important to understand the basic facts in oil industry that explain the possible fluctuation of the commodity and the market trends. Socio-economic and political analysts have established that the oil market trend has outgrown the forces of demand and supply. This means that other factors like petroleum oil investors’ behavior in respect to prices is likely to affect the industry. To give light on the possibility of this scenario, past records and investigative analysis indicates that some economic strategies by oil firms is responsible for the fluctuation stint experienced in 2008. Since oil is such a precious commodity on whose wheels the global economy rides, most of the firms have resorted to hedging tactics to exploit the changes in international prices with a goal of maximizing profit. It therefore evident that some of the financial woes that have been experienced in late 2000s can be attributed to financial market shockwaves of oil firms malpractices. Due to the lucrative opportunities in the industry, most of the investors lead in speculative behavior by divesting funds through pension funds, hedging and investment banks which reflects on the experienced changes in the global economy(Omeje 178). This emerging scenario has made it difficult to predict oil market trends. The oil industry analysts are still debating on the level of significance of forces of demand and supply in Oil industry but one issue that comes out more challenging is the lacking sense of emerging reality in this industry by investors. A crucial aspect of Oil industry has been on the basis of absolute price dictation by OPEC countries but this has so far changed. Changing socio-economic and political landscapes has made oil market to behavior like any other commodity. It is therefore important to underline the diminishing monopoly based pricing style that was previously used by OPEC. The observed case of US exploring its oil has equally contributed to the shift in pricing strategy previously used by global producers. One observation across the world is that Oil products have become the most actively traded item. Despite market concentration noted in New York, Singapore and London in UK, both refined and crude oil has gained trading popularity ...Download file to see next pagesRead More
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