The supply and demand behind United States Oil prices Research Paper

The supply and demand behind United States Oil prices - Research Paper Example issue The Organization of Petroleum Exporting Countries (OPEC) syndicate accounts for 40 percent of the entire production of vegetable oil at the global level. The export of oil by the OECD countries represents well-nigh 60 percent of the total amount of oil traded in the international markets. The size of supply of crude oil by the OPEC countries is considerably large. This makes its activities and statements influence the oil prices prevailing in the world. Deliberate reduction in production by the OPEC countries leads to fall in prices of oil internationally. Supply 60 percent of the worlds oil supply comes from the non-OPEC countries. Although the group of non- OPEC countries is greater in size than the OPEC group, they are the price takers in the international market. This is because they do not enjoy any au naturel(p) electrical capacity. This implies that these suppliers merely act according to the market prices rather than making attempts to manipulating them. That is, they respond to market prices rather than attempting to manipulate them. The non OPEC countries produce nearly at the full capacity and lapse in production leads to rise in total oil supply. It gives the OPEC the facility to further maneuver world supplies. Global oil inventories Inventories of oil hold globally balance the demand and supply of oil in the world. In case of greater production of oil than the level of demand, excess supplies are stored as inventories. Again these inventories can be used in a reverse situation. When consumption becomes greater than demand, inventories are utilized to meet this incremental demand. The relationship living between the oil prices and inventories of oil allows the market to correct the effect of any disruptive activity. If the inventory is building up, it implies that there is excess supply. In this situation, oil prices drop curtain ultimately leading to a fal l in production. Thus it brings a balance between demand and supply. On the contrary, if the level of inventory is negative, there is a shortage of supply compared to the demand level. The oil prices would rise and production of oil would also increase. Financial markets Trading in oil does not only necessitate the physical market. Oil brokers also make trade contracts that relate to future dealings in oil. Future delivery of oil is termed as futures. There are customers, such as airlines, that purchase futures in order to hedge against the possibility of oil price rise in future. This might bring unfavorable effectuate on the ability of the company to operate efficiently and profitably. Often oil producers make future contracts so that it might deliberately lock the price for a particular time period. Demand The Organization of Economic Cooperation and Development (OECD) mostly consist of the United States and the greater part of Europe and some other in advance(p) countries. Th is organization takes the responsibility of the worlds 53 percent of the total oil demand (Fessler, 2011). The member nations consume oil in much higher(prenominal) quantity than the non-OECD countries. However, they exhibit a lesser rate of growth. The demand from the OECD countries has gone down while that by the non OECD countries has gone up in the period of 10 years between 2000 and 2010 (Fessler, 2011). Non-OECD demand China, Saudi Arabia and India together had the