In July 2008 the spot price of Europe Brent crude oil reached a peak of $143.95 per barrel. By December 2008 the price dropped to $33.73 per barrel. On the 8th September 2011 the price was $117.99 per barrel. (Source US Energy Information Administration) Economics is the study of using resources in a productive manner and to allocate them in the best possible way. Economics is concerned with the production and consumption of goods and the transfer of money to create and get those goods. Economics tells us how people in the markets communicate in order to achieve what they desire and fulfill their goals. Economics deals with studying the wants and desires of people resulting in creating the demand for a product which leads to the production of the product by the suppliers causing supply of a good or service. This want or desire leads to interaction of people and governments which results them to act in a several ways. In July 2008 crude oil reached its peak and became as expensive as $143.95 per barrel due to the speculation of the markets and towards the end of the year in December 2008 the price of crude oil fell to $33.73 per barrel. This immense fall in the prices was because of the financial crisis of 2008. Recession resulted in the collapse of many financial institutions, bail out of banks by the national government and the downturn of the stock markets leading to closure of firms causing prolonged unemployment. People lost their jobs due to failure of the businesses and decline in the economic activity. The main reason for the financial crises in 2008 was due to the liquidity problems of the United States Banking System. During this period the international trade declined and credit tightened. The crude oil prices shoot up in September 2011 after December 2008 to $117.99 per barrel which was the result of the political unrest in Egypt. The increase in the prices of crude oil is due to the speculation of the markets. Speculation means investing in a commodity to make future profits according to price changes without using or producing the commodity. The buyer and seller get into a contract where the buyer agrees to purchase a certain amount of the commodity (oil) at a fixed price. The contract makes sure that the buyer would receive the price of oil per barrel stated in the contract even if the market price of barrel is higher. The large investment in oil by the speculators has resulted in creating a higher demand for oil, which drives up its prices. Demand is referred to the amount of quantity (services or product) wanted or anticipated by the buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price. The relationship between price and quantity demanded is called law of demand. The relationship shows that when price of a good rises, the quantity demanded will fall and vice-versa.
TWO factors determine the price of a barrel of oil: the fundamental laws of supply and demand, and naked fear. Both are being tested by the violence that is tearing through Libya, the world’s 13th-largest oil exporter. The price of a barrel of Brent crude now hovers around $115. On February 24th, however, it rose to almost $120, as traders realised that they might have to do for a while without some or all of Libya’s exports: some 1.4m barrels a day (b/d), or about 2% of the world’s needs. The situation in Libya is grim, as the rebels and the forces of Muammar Qaddafi battle for control of the country’s only resource. Brega, the seat of the Sirte Oil Company in the east of the country, has changed hands three times in recent days. Most of the oil workers have fled, and production has fallen by two-thirds. The ports of As Sidra, Brega, Ras Lanuf, Tobruk and Zuetina, which together handle almost 80% of Libya’s oil exports, were all seized by the rebels; two have now been retaken by Colonel Qaddafi’s forces. The rebels remain in control of Africa’s largest oilfield, Sarir, pumping...
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