Case Study in Demand and Supply

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Business School

MBA 644-Managerial Economics

 Case study                

Oil is a commodity, and as such, it tends to see larger fluctuations in price than more stable investments such as stocks and bonds. OPEC, or the Organization of Petroleum Exporting Countries, is the main influencer of fluctuations in oil prices. OPEC is a consortium made up of 13 countries: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. OPEC controls 40% of the world's supply of oil. The consortium sets production levels to meet global demand and can influence the price of oil and gas by increasing or decreasing production.

The oil price touched the level of $ 136.31 per barrel in June 2008.

2005

Hurricane Katrina struck the southern United States in 2005, affecting 19% of the U.S. oil supply. Before the hurricane the oil price was $ 50 per barrel.

Mid-2014

In mid-2014, there was a lower demand for oil in Europe and China, but OPEC refused to cut oil production and continued with a steady supply of oil.

 United States domestic production has nearly doubled over the last several years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets.

Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping at record levels.

First quarter of 2015

There are signs, however, that production is falling because of the drop in exploration investments. RBC Capital Markets has calculated that projects capable of producing more than a half-million barrels a day of oil were canceled, delayed or shelved by OPEC countries alone last year, and this year promises more of the same.

2016

Recently, oil companies in Canada severely pulled back or stopped pumping altogether after a forest fire devastated the oil sands region. Production there dropped by a million barrels a day, roughly 40 percent of the area’s output. Currently the economies of Europe and developing countries are weak and vehicles are becoming more energy-efficient.

Production cost of oil in the Middle East is relatively cheaper to extract, whereas oil in Canada in Alberta’s oil sands is a lot more costly.

Required:

1. Critically analyze the above and ascertain how the factors impacted on oil price in various periods discussed above. Your answer should include graphs.
2. What do you expect the oil price in mid-2017? Give reasons for your answer.

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Business School

MBA 644-Managerial Economics

Case study                

Today, gold is sought after not only for investment purposes and a strong jewelry market, but it is also used in the manufacturing of certain electronic and medical devices. Gold (as of March, 2011) was around $1,420 per ounce and making record high.

In 2010, jewelry accounted for approximately 54% percent of gold demand, which totaled 3,812 tonnes, according to the World Gold Council and The London Bullion Market Association. India, China and the United States are the largest consumers of gold for jewelry in terms of volume..