oil and the economy
TRANSCRIPT
O V E R V I E W
From August of 2014 to January of this
year, the price of oil has trended
downward. Yet for the past nine months,
the price has been rising, and analysts
expect this trend to continue. What’s
behind these two different trends? These
slides will explore some of the factors that
determine the price of oil and how the
price affects the economy.
H O W T H E P R I C EO F O I L I SD E T E R M I N E D
In general, three things determine the
price of oil: supply, demand, and market
sentiment.
When the demand for oil goes up and
the supply is low, the price increases.
Conversely, when the supply of oil is
greater than the demand, the price goes
down.
Market sentiment is simply the attitude
that investors feel towards the market
or a particular security.
W H Y D I D T H EP R I C E O F O I LR E C E N T L Y D R O P ?
Investors think it will take years before
the price of oil rises to $100 per barrel
again.
One reason that the price fell in the first
place may be due to increased
production from the US and Canada.
As the amount of oil on the market
increased, the price began to fall.
R I S I N G P R I C E S
Numerous factors have led to the recent
rise in oil prices.
First, a number of oil companies have
either gone out of business or are
shutting down production. It’s just not
profitable for them to operate when the
price of oil is low. Their actions, in turn,
make the price go up.
Second, OPEC has hinted at a
production freeze multiple times this
year.
R I P P L E E F F E C T S
When the price is down consumers benefit
in various ways. For example, the price of
gasoline, diesel, and heating oil usually go
down as well.
Yet low prices also have many negative
effects. Countries that rely on oil
production to boost their economies, like
Venezuela and Nigeria, suffer
economically. Venezuela is also
experiencing political instability as a result
of the low prices.
Finally, when the price of oil is low, oil
companies see their profits decrease and
cut employee salaries.