264356 Internal & External Environment - Internal External...

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Internal & External EnvironmentNameInstitutionDate
2Internal & External EnvironmentThe prices of oil have huge significance to global economy. Oil is one of the products which are traded regularly in global market in terms of sales volume and monetary exchange. The price of oil directly affects the prices of other products because it is a major factor of production which drives an economy (Mankiw 2008 p. 509). A change in prices of oil also affects the prices of other fuel. An increase or decrease in price can affect both oil consuming andoil producing nations that depends on oil for economic growth. The prices of oil had declined in recent years since the late 90s but its price has increased gradually since the year 2014 (Mathew n.d.). Ever since then, its prices have not been stable. In current global market, the price of oil is much lower as compared to previous years. One of the key factors that are attributed to a decline is its high supply and a strategy employed by some oil countries to increase their oil supply in themarket as a means of maintaining their market share (Noreng 2006 p.108). Organization of petroleum exporting countries (OPEC) produces higher percentage of oil products which is consumed around the globe (Sexton 2015 p.420). OPEC has a huge role in the stabilizing the supply and prices of oil. Over the years, OPEC has tried to address the issue of oil prices by trying to reach consensus with major cartels and oil producing countries who are not OPEC members. In the recent years OPEC failed to reach into an agreement on ways of ensuring that oil prices are stabilized. This paper will analyze origin, factors and impact of the oil price collapse and provide an analysis of OPEC’s real influence in stabilizing the market. The organization that regulates oil trade in the world is organization of petroleum exporting countries (OPEC) (Sexton 2015 p.420). The organization was founded in 1960 by major oil producing nations which includes Iraq, Kuwait, Iran, Venezuela and Saudi Arabia (Khusanjanova 2011 p.14). Since then other countries has joined the organization. These member
3countries have witnessed a decrease in the value of their produce since the formation of the organization. OPEC is the only global organization that regulates the prices of oil which are being sold in global market. An increase in the price of this valuable commodity contributes to adecrease in demand by the consumers. One of the key factors that influences of demand and supply of oil is its price in global market (Cordesman 2006 p.3). If the prices of oil decline, several sectors of the economy would be affected. Most oil producing countries depends on oil togenerate their revenue. A decline in prices will have significance on their revenue which makes itdifficult for OPEC nations to engage in matters of development. Exporters will be also affected by a reduction in oil prices. A decline in prices for export companies is much similar to tax cut thus it would lead to an increase in consumer disposable income. The economy of oil consuming

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