Should Congress Raise The Minimum Wage?

Some emergent countries have put a lot of effort to find new reservoir or find the best way to recover oil from deep seas such as The pre-salt in Brazil. America has high projections for the future with fracking. However, lower prices would put at risk investments in unconventional sources. For example, tar sands, shale oil, deep sea and fracking. Our forecast is that the crude oil price tend to slowly rise until the market balance it self to avoid oversupply especially because of the weakening in the global oil

The US EIA indicates that the refineries’ maintenance procedures play a part in the soaring oil prices (US EIA 1). These maintenance procedures occur every time the demand for oil shifts from the low prices during the mentioned unfavorable conditions towards a peak. For instance, during winter season, the demand for fuel is relatively lower, which gives the refineries an incentive to switch to low production of oil and gasoline. The onset of warmer seasons prompts a shift back on production of the much demanded summer-grade blend during where certain production processes have to be halted (US EIA 1). The production lags involved in the transition periods accompanied with higher costs when producing the summer-grade gasoline could account for the higher pump prices.

Recently, we found that “the oil price dropped a lot; one year ago, a barrel of Brent crude cost $110 and today it was merely $60, which resulted in 45% decrease in the oil price through economies. Not only did the oil price cut, the price of goods and services also dropped in the worldwide economy. When the price of goods and services declined, consumers would like to consume more and purchase more products, because they could pay less to get the same thing as before. And for firms, cheaper inputs lowered the cost of manufacturing goods, which resulted in the increase in the overall profit. What’s more, we all know that energy use (oil) is

The oil price collapse between June 2014 and January 2015 was the third largest of the past 30 years and was driven by a combination of few conditions. (Kose, Ohnsorge, Stocker, 2015). It fell by about 50 percent between those periods and consisted of several phase. Initially, in June 2014, the oil price of Brent oil drops from $110 per barrel to $80 per barrel before the OPEC meeting in late November. The second phase of oil price drop occur in the early of January 2015, where oil price drops to below $50 per barrel. This drop however was recovered slightly on May 2015, when oil price rise to about $65 per barrel. After the OPEC meeting, the price of oil was adjusted rapidly to about $70 to $75 per barrel, and have remained between this price value until January 2015 (Husain, Arezki, Breuer, Haksar, Helbling, Medas, Sommer, and an IMF Staff Team, 2015). (Figure 1) (See Apendix A for more information regarding oil price drop)

The modern world of today runs on fossil fuels with crude oil being the live blood of industrialized countries. Though much of the twentieth century old was plentiful easily acquired and low in cost it has only been in the past thirty years that we have seen oil prices rise substantially. This can be attributed to many different reason. These price changes have challenged the industrialized world to become more creative with their techniques of both acquiring oil and using it.

Oil is a scarce commodity that is extracted from deep in the ground and it is not available everywhere. It is a commodity that has many uses and as such, its price, supply and demand fluctuate based on the needs of the economy and the market. In addition to oil being used to make gasoline it has many other uses, such as to make plastics, heating for people’s homes, in asphalt, and other things. Because of its many applications, it is a product that is in or plays an important part in our daily lives in one way or another. When the economy goes through periods of expansion, which are periods of economic growth, the demand for oil becomes greater and producers are encouraged to engage in more drilling in order to increase the supply to keep up with the consumption and also to maximize profits.

In 2014, the consumer price index reached to 2% due to high energy prices, particularly oil as the consumption tax rate lifted by 3% from 5% to 8%. (Yoshino, Taghizadeh Hesary and Miyamoto, 2017)

The trends in the oil industry are clear and undisputed: exploration and production are becoming more costly, and are giving rise to greater environmental risks, while competition for access to new prospective regions is generating increasing geopolitical tensions. According to the International Energy Agency, the rate of world crude oil production reached its peak in 2006.[IEA 2010a) The IMF has joined a chorus of energy industry analysts in concluding that scarcity and high prices are here to stay.[IMF 2011a, 2011b]

In recent years, the fluctuations of oil prices have gotten the attention of the whole world. From $20s in 2003, it hit a mid-term peak of $148 in mid 2008, then fell to $30 during early 2009, and now back to $70-$80. Economic principles have demonstrated that the rise of oil price is a function of lack of supply and greater demand. We know that oil is lack of supply since there’s no major oil field found in the last 40 years and oil can’t be made within decades. However, the following conundrum has not been resolved: What are the key demand side drivers of price for oil? The price of oil depends on a variety of factors which leads to the increase of price. In summary,

Over the past year oil prices have dropped significantly. This is mainly due due to an increase in technology, which has allowed for a significant increase in the production of oil. The United States whose top import is Oil has started to produce more oil domestically. Oil prices have dropped from $110 a barrel of WTI to a whopping $41. This reduction in the demand for oil would usually curb supply, but many countries are afraid to curb supply incase of loosing market power. Another reason prices are dropping is people are being more environmentally conscious and reducing there oil use. In recent years we have seen many alternative fuel sources introduced into the market and people seem to gain utility from “going green” even if it cost more. The reduction in oil prices is heavily affecting economies that are reliant on oil exports. Oil prices, which continue to drop, are negatively affecting the GDP of countries who are reliant on oil exports. This drop in prices is can be simply by supply and demand there is most evidently a higher supply of oil then demand has brought prices down. Since the oilrigs have already been drilled countries rather sell oil at a loss then not sell any oil at all, so that some of the money can be recovered. This means countries are choosing not to curb the supply but continue to produce even though the market price is so low.

Couple years ago, oil prices dropped around fifty percent, at the high of $115 a barrel in June 2014 to a low $57 earlier this year in January. (Rich, 2017, para 1.) The price fell because of the slow world economy, leading to less demand for oil than what was predicted. OPEC, which stands for Organization of the Petroleum Exporting Countries made more than expected. Then the fast growth of the U.S. the shale produced from the hundred dollar plus a barrel phase. With the technology of shale, which is a process extracts oil from hard rocks the US has the largest reserve with 264 billion barrels (Matthews, 2016, para 4)

Energy resources are essential for national security, technological development, overall contemporary life style, etc. In this respect, oil is the main source for worldwide economy. Peak oil would imbalance countries' economical situations and may lead to a chain reaction with negative effects on multiple layers. Evidently, there is mutual interest to prevent such a thing from happening but the possibility is nevertheless considered. OPEC's initial goal to ensure stable prices on petroleum markets in order to avoid any negative fluctuations did not always correspond. The organization actually favored inflation more than in one occasion but its influence in controlling oil prices dropped considerably since 1973. It was proven that, having quadrupled the price of oil, OPEC had in its hands the power to inflict economic hurt on the rich countries. (Beenstock 2007, p. 134) Although OPEC does not completely control the oil market today, it nevertheless continues to be influent because its decisions to reduce production may lead to either a decrease or increase of oil prices. OPEC's existence is dependent on the future of oil. Whether or not oil will dominate as the main energetic source for worldwide economy will decide its future. Considering that OPEC's oil has been a vital source of energy during the last half of century, (Khusanjanova 2011, p. 19) and that oil is expected to play a similar role within the next century, we can assume the organization will at least maintain its

The IEA found that 59% of all primary energy consumption is from oil and natural gas. In the US and Europe reserves of crude oil peaked in the 1970’s and since then with only few notable exceptions extraction has outstripped additions to reserves. Oil is an exhaustible and finite resource, therefore it’s price must not only reflect current supply but future supply in order to reflect scarcity. It must be assumed that as reserves are an indicator of scarcity they should be important an factor in pricing. Though as a result of economic replenishment as price increases producers will find it possible to use more capital intensive methods to recover greater reserves such as drilling in the North Sea, and technological progress

Oil has become the means of survival for both consumers and producers. Consequently, the fluctuations in the price of oil have become one of the greatest concerns in the economy. According to Branginskii, ‘the market of energy carriers, primarily oil, are a great threat to world economy. Lack of clarity with crude oil prices

OPEC consists of oil producing countries, and a survey conducted in the year 2008 revealed that OPEC accounts for 58% of the globe's crude oil products. This has contributed to growth of its member states to becoming the world's rapidly growing consumers of oil. Therefore, having OPEC member states as significant consumers of oil has a significant impact on the volume of their oil exports globally affecting their oil revenue; in addition, the decline of availability of oil in the world reflects in the price of oil (AlYousef, 2013). According to the World Oil Outlook, Oil continues to play a vital role in satisfying the globe's energy needs. It also emphasizes the demand uncertainties that challenge future oil in the short-term and long-term. Some of the factors affecting the demand for oil includes policies and technology, particularly in the transportation industry (WOO 2012).