Explain the Key Demand Side Drivers of Price for Oil.
1(a) Explain the key demand side drivers of price for oil.
In recent years, the fluctuations of oil prices have gotten the attention of the whole world. From $20s in 2003, it hit a mid-term peak of $148 in mid 2008, then fell to $30 during early 2009, and now back to $70-$80. Economic principles have demonstrated that the rise of oil price is a function of lack of supply and greater demand. We know that oil is lack of supply since there’s no major oil field found in the last 40 years and oil can’t be made within decades. However, the following conundrum has not been resolved: What are the key demand side drivers of price for oil? The price of oil depends on a variety of factors which leads to the increase of price. In summary, there are five key demand side drivers, the rise of developing countries, especially China and India, the depreciation of US Dollar, the stimulation on world economy, the increase of global transport, and the rise of other raw material prices.
First of all, the major key demand side driver of price for oil is the rise of developing countries1. The two largest ones are China and India. The population of China is 1.3 billion and that of India is 1.1 billion, combining the population of these two countries, it becomes 2.4 billions of population. It is more than one third of the whole world population. Combining all populations of United States, all developed countries in Europe, and Russia, there is only around 0.7 billion population. The population of China and India is more than triple all developed countries combined. Can you imagine how much the use of oil will be increased by just China and India? Furthermore, these two developing countries have just started to develop for about two decades. The average age of China is 37 and the average age of India is 25 only. That means, in the coming 20 to 40 years, the economy of these two countries will still be growing and developing. Thus, the demand of oil will keep increasing
In recent years, the fluctuations of oil prices have gotten the attention of the whole world. From $20s in 2003, it hit a mid-term peak of $148 in mid 2008, then fell to $30 during early 2009, and now back to $70-$80. Economic principles have demonstrated that the rise of oil price is a function of lack of supply and greater demand. We know that oil is lack of supply since there’s no major oil field found in the last 40 years and oil can’t be made within decades. However, the following conundrum has not been resolved: What are the key demand side drivers of price for oil? The price of oil depends on a variety of factors which leads to the increase of price. In summary, there are five key demand side drivers, the rise of developing countries, especially China and India, the depreciation of US Dollar, the stimulation on world economy, the increase of global transport, and the rise of other raw material prices.
First of all, the major key demand side driver of price for oil is the rise of developing countries1. The two largest ones are China and India. The population of China is 1.3 billion and that of India is 1.1 billion, combining the population of these two countries, it becomes 2.4 billions of population. It is more than one third of the whole world population. Combining all populations of United States, all developed countries in Europe, and Russia, there is only around 0.7 billion population. The population of China and India is more than triple all developed countries combined. Can you imagine how much the use of oil will be increased by just China and India? Furthermore, these two developing countries have just started to develop for about two decades. The average age of China is 37 and the average age of India is 25 only. That means, in the coming 20 to 40 years, the economy of these two countries will still be growing and developing. Thus, the demand of oil will keep increasing
References: 1) Roger, James(2004) Hot Commodities: how anyone can invest profitably in the world’s best market 1 st ed.Beeland Interests Inc. 2) Leeb, Stephen and Lee Donna(2004)The Oil Factor: Protect Yourself and Profit from the Coming Energy Crisis The Warner Book Group 3) Begg, David and Ward,Damian (2007) Economics for business 2nd ed. Mcgraw-Hill 4 ) Churchill, G. A., and Peter, J. P. (1998). Marketing: Creating Value for Customers, 2d ed. Boston: Irwin/Mcgraw-Hill1) 5 ) "How to Think About Pricing Strategies in a Downturn," Harvard Management Update, Vol. 7, No. 3, March 2002