The World Oil Market in 2008. For more resources on the economics of Oil & Gas, visit our dedicated Economics Blog Channel.

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Presentation transcript:

The World Oil Market in 2008

For more resources on the economics of Oil & Gas, visit our dedicated Economics Blog Channel

Market volatility Crude prices reached a record high in July of $147 a barrel By the end of the year prices had collapsed – on one measure light sweet crude oil fell below $40 a barrel OPEC is desperately trying to stabilise prices through a series of production cuts The main cause of the collapse in prices is a sharp fall in global demand for oil

A super-spike in prices

Where next?

Oil – a case study in price volatility

Explaining high and low oil prices Quantity of Oil Price per barrel Short run supply Demand P1 Q1

Explaining high and low oil prices Quantity of Oil Price per barrel Short run supply Demand P1 Q1 D2

Explaining high and low oil prices Quantity of Oil Price per barrel Short run supply Demand P1 Q1 D2 P2

Speculation can cause price spikes Short run supply Demand P1 Q1 D2 D2 + speculation P2 P3 Quantity of Oil Price per barrel

Supply more responsive over time…… Short run supply Demand P1 Q1 D2 D2 + speculation P2 P3 Medium term supply P4 Quantity of Oil Price per barrel

Falling demand as recession bites Short run supply D4 P1 Q1 D2 + speculation P2 P3 Medium term supply P4 Quantity of Oil Price per barrel

Falling demand as recession bites Short run supply D4 P1 Q1 D2 + speculation P2 P3 Medium term supply P4 Quantity of Oil Price per barrel

Oil prices and the number of rigs

Will OPEC succeed in cutting output and stabilising prices?

OPEC’s share of world supply

UK oil consumption now at a twenty year low

Oil producers – selected countries

How much will world demand fall in 2009?

Oil provides a bonanza for some

The UK is now a net oil importer

UK quarterly balance of trade in oil

And North Sea oil output is well beyond the peak

Crude prices and prices at the pumps

Marginal and average cost It has been estimated that the average cost of oil per barrel is around $50 And that the marginal cost of bringing on additional output is between $75-$80 per barrel Explain some of the reasons why there is a difference between the marginal and average cost of production.

Oil Market Videos OPEC agrees record oil output cut Russia rues oil price fall Oil prices fall below $50 per barrel Oil price affects crayon firm High oil prices lifts BP profits New battle over Arctic oil Why High Oil Prices Hits Us All