Oil is a significant driver of economic growth, especially in oil-producing countries. As a result, oil is the most sought after resource globally. According to Yan (2012), oil prices are regarded as a measure of the global economy; fluctuations in oil prices are an issue of concern both in political and economic circles ( Partington, 2020) . This project reviews oil price fluctuations, analyzes comprehensively all factors affecting oil prices, and presents feasible recommendations. The project employs the demand and supplies analysis model and the profit maximization model to review price fluctuations. The United States data is used for this project. Based on the plotted supply and demand curves, the equilibrium price and quantity were $60.00 and 102 million barrels of crude oil ( MSN Staff. 2020) . However, the global demand for oil changes because there is a difference in countries and their economies (Orrell, 2020). As a result of a shift in need, the equilibrium price and quantity changed to $85.00 and 107 million barrels of crude oil, respectively (Liu, Wang, Fang, Dong, & Wu, 2020). Besides, the project determined that the demand and supply of crude oil depend on a plethora of factors that include but not limited to price fluctuation and price wars.
The Iran USA conflict is the main factor influencing the demand and supply of crude oil (Qianqian, 2011). Complementarily, oil-producing countries, for example, OPEC countries, can increase their amount with increased oil consumption stemming from improved technology and diversified production methods (Gao, Fang, An, & Wang, 2017). Increased manufacturing capabilities and low-cost production affect oil prices in the world. Wholesomely, no one individual can interfere with oil prices on a global scale. However, entities can improve their earning through profit maximization by ensuring marginal revenue equals the marginal cost at a given time.
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In 2015, the United States, in collaboration with its allies, made negotiations with Iran and a deal which led to subsequent lifting of the economic sanctions that had been imposed onto the oil-rich Middle East nation (Cai & Wu, 2019). Part of the agreement was that Iran was to halt its nuclear programs, a statement which prompted the congress to approve of the deal. Yan, 2012). However, in the year 2018, President Donald Trump backed out of the agreement and re-imposed the economic sanctions to Iran. On January 2nd, 2020, the US forces further attacked Iran using unmanned drones, killing the country’s senior military general. This offensive killing caused worldwide tensions especially following Iran’s threats of a retaliatory attack. As a result, the global oil prices spiked. Curently, Iran does not dominate the global market for as it did in the 1970s and 1980s. The economic sanctions has hurt its ability to produce and market as much oil as before (Cai & Wu, 2019). However, its role in the global oil market cannot be underated for whatever the reason.
References
Cai, Y., & Wu, Y. (2019). Time-varied causality between US partisan conflict shock and crude oil return. Energy Economics , 84 , 104512.
Gao, X., Fang, W., An, F., & Wang, Y. (2017). Detecting method for crude oil price fluctuation mechanism under different periodic time series. Applied energy , 192 , 201-212.
Liu, B., Li, X., Wang, H., Fang, Q., Dong, J., & Wu, W. (2020). Profit Maximization problem with Coupons in social networks. Theoretical Computer Science , 803 , 22-35.
MSN Staff. (2020). How Could Iran War Affect Oil Prices? MSN. https://www.msn.com/en-nz/money/news/how-could-iran-war-affect-oil-prices/ar-BBYFsbz
Orrell, D. (2020). A quantum model of supply and demand. Physica A: Statistical Mechanics and its Applications , 539 , 122928.
Partington, R. (2020, January 3). Oil Prices Spike After US Drone Strike Kills Iranian General . The Guardian. https://www.theguardian.com/business/2020/jan/03/oil-prices-spike-after-us-drone-strike-kills-iranian-general
Qianqian, Z. (2011). The impact of international oil price fluctuation on China’s economy. Energy Procedia , 5 (5), 1360-1364.
Yan, L. (2012). Analysis of the international oil price fluctuations and its influencing factors.
