Running head: EVALUATION OF OIL MARKET 1

Evaluation of Oil Market

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Introduction

Oil has progressed over time to become the most economical mature product in the

global market. Though subtle companies are known to be producers of oil in the whole world

and precisely they are distant from their consumption point, the trade involving this highly

valued commodity is vigorous in nature all over the world. Almost seventy-five percent of

transactions involving oil are delivered through waterway by use of supertankers. Companies

involved in oil trade redirects operations to markets which have higher prices (Clayton, 2015).

Since oil is shipped all over the globe, supply and demand act as the primary

determiner of its market price. Also, events all over the world can also be the determiner of

the price which can affect oil based industries such as petrol as well as heating oil. In recent

past, the prices of oil have drastically gone high due to raise in demand in developing the

world mainly in Asia. As a result of growing demand, most oil trading companies start

heading their oil cargoes to those countries. As a result, there was the rise in price in other

countries. Moreover, political instability in oil producing countries also resulted to rise in oil

as well as oil-related commodities. In fact, international energy reports suggest that

production of oil could cease as a result of political unrest in these countries. The largest oil-

producing cartel OPEC (Organization of Petroleum Exporting Countries) also have the

capacity which can influence oil prices in the global market. However, the influence caused

by OPEC is declining since there are new supplies from non-OPEC oil producing countries.

The above oil market has an impact on international energy supply as well as demand on the

economy of Abu Dhabi.

Due to the above factors, International Energy Agency issues reports which are used

to forecast global oil market trend and development regarding energy sources for world
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markets for the next five years (Dahl, 2015). The main aim of these reports is to ensure

transparency in the market via thorough studying recently trending issues as well as future

predictions of demand and supply globally, trading as well as processing of oil and also

scrutinizing what causes and prevents deployment of oil. The following highlights evaluation

of oil market from reports of International Energy Agency.

Discussion

International energy reports show that oil prices for Brent and WTI dropped from

30bbl dollars in early 2015 for the first time since 2011 becoming a half after few months. For

the last for decades, oil producing countries continued with their production as well as selling

as much as they could, giving an opportunity for the market to determine the price. The

reports show that main short-term advantage to consumers is low prices which act as boosters

for demand growth. However, if the low prices last for long, it results to cut back on savings

in new supply. This has been demonstrated by announcement succession from main

companies (Frankel, 2007).

International energy reports suggest that prices of oil cannot go up to levels needed

to support savings in resources which have high cost unless oil market that is massively

oversupplied returns to balance state and stocks of elevated levels start diminishing. The

report shows that the drastic rise in the price of oil endangers curtailing the growth of an

economy. For instance, the economy of Abu Dhabi in the United Arab Emirates.

International energy reports give analyses of main factors that affects supply as well

as the demand for oil from 2016 to 2021 in oil markets. These factors are; the effect of

demand for lower prices of oil, nuclear sanctions lifting in Iran with recent funding changes in
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the Middle East being inclusive, oil market returning to balance timing as well as high-cost

supply flexibility from light.

The Effect on Demand for Lower Oil Prices

International energy reports show that oil markets have seen in the reduction of

oil prices. This decrease in costs results in higher spending which in turn supports globe

economic growth. However, the impact size depends on fundamental causes of the decline in

price, the degree of pass through to companies as well as the amount they spend. Even

though, prices of oils advances and losses through consumers as well as producers totals to

zero, the whole global impact is optimistic.

International Energy report suggests that oil prices decline in oil markets are

supposed to improve economic growth for the entire globe to approximately ½ % point in

2015 and 2016. This was accounted for as a result of limited pass-through to prices of

retailers. However, other related shocks can counterpoise the highlighted positive impact.

Also, the reports suggest that the speed at which price of oil has declined has the potential to

cause financial difficulties as well as other related strains, of which could cause global

benefits of lower prices of oil to reduce. Though the effects associated to this, have been

controlled to this far.

Lifting of Nuclear Sanctions in Iran

International energy reports indicate, Nuclear Sanctions to Iran had the impact on the oil

market. This is because Iran was not selling its oil in the globe oil market. As a result, the

demand increased as the supply was down causing the price of oil to rise drastically.

However, the lifting of Nuclear Sanctions has led to decline in the prices of oil in the
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worldwide market. This because the supply of oil has gone back to normal causing the

demand and supply to balance.

The reports suggest that as a result of lifting this sanctions, the total oil production in

Iran, exports being inclusive could go up to approximately 2.8 million barrels on a single day

to about 3.5 million barrels by the year 2018. As a result, this impacts the Global oil market as

well as raising the Economy of Iran.

Oil Market Returning to Balance Timing

Based on data in International Energy reports, the global oil market is returning to balance.

This, however, means high prices. The data gives suggestions that producers of oil require

price ranging between $ 75-85 for their survival. However, this is not likely possible for at

least one or so to come. The report suggests that the future looks forbidding for industry on

life support without timelier price relief.

International energy reports suggest that future global oil markets are not

predictable. However, the reports state that the era that dominated high prices of oil has

already ended. The report shows that the number of unresolved agreements for 2016

December oil has gone high although there has been tumbling of price, showing that oil

producing companies are now selling barrels to oil market at a cheap price.

The report suggests that long-term investments in additional supply such as Canada

have been thwarted by failing futures price. Except if the demand of oil is hit use of electric

for instance, the revolution of the electric vehicle or any other globe decline, the shortfall that

results will cause the prices oil to go up.

International energy reports also suggest that as the prices of oil declines in the

global oil markets, there are downsides associated to this. One of this is the effect it has on
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investment. The International Energy Agency have given likely effects of the twenty-four

percent fall in savings which was seen in the year 2015 and the predicted seventeen percent

fall in this year. There is barely any extra production ability in today's global oil market, Iran

and Saudi Arabia being exceptional. The noteworthy savings are needed for maintaining

production in existence before a move is taken to offer the new required capacity to meet the

mounting demand for oil. The risks associated with a drastic rise in oil price as a result of

inadequate savings is undermining as the drastic price of oil has proved to be (International,

2008).

International Energy Supply and Demand on the Abu Dhabi Economy.

Demand and supply are the main aspects that determine how a product will fair in the

market. Oil is one the main product that is affected in the global oil market by the force of

demand and supply. If the demand for oil rises then, it means that the demand is higher than

the supply. This causes the price of oil to rise. However, this is not the situation currently

because the oil price is declining. This can be accredited to increase the supply of this product

in the global market. The decline in the price of oil has both advantages and disadvantages.

The benefits can be felt by the consumers while the disadvantages can be felt by the oil

producing countries mainly those that produces very little amount of oil regarding barrels.

One of this countries is the United Arab Emirates with Abu Dhabi City mostly affected

regarding its economy.

In Abu Dhabi, studies have revealed that there is slowing job market due to declining

oil prices. The studies show that hiring in the city of Abu Dhabi has fallen by at least one

percent in the second quarter of 2015 up to 8, 109 compared to the first three months of the

same year which was 8,213. Moreover, the studies go on and reveal that there has been a drop
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in some professional jobs inquiries by six percent with the first three-quarters of 2015. If this

trend repeats itself in this year, then it means that the economy of Abu Dhabi will start

declining. The above can be credit by the fact that UAE was to some extended depending on

oil for its GDP of which it expected to go down by from thirty percent to about five percent

by the year 2020. Even though the decline of oil price will have some impact on the economy

of Abu Dhabi, the decline may not be felt much since the non-oil sectors account for sixty-

nine percent of Abu Dhabi GDP. The government of UAE is also putting efforts to branch out

from oil and start depending more on non-oil generating income.

Summary

One of the primary energy commodity is oil. Oil is significant and plays a vital role in

development as well as the growth not only for the growth of the economy of a country but

also the growth of global economy. The stability of oil price in the global oil market can be

beneficial to both the consumers as well as the producers in sustaining, reigniting as well as

expanding economic growth. However, political instabilities in oil producing countries,

speculations in oil markets and others factors are the main factors that result to rise and

sometimes to decrease of oil price. This price fluctuation can have an impact which can

extend to reach goods and services. This goods and services may, in turn, have a direct

bearing on the economy and also the communities all over the world.

Therefore, to alleviate the undesirable impact of fluctuation in the price of oil, it

important to understand their price relationship and be able to forecast direction the price will

take. Also, since demand and supply are the key factors affecting price fluctuation, the two

should always balance each other. This is because, a rise in one will have an impact on the
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other which can either cause the price to rise or to decrease where there will be an effect on

economic growth for either way (International Business Publications, 2013).

Further, in the global oil market whereby information circulates the markets, there

is a necessity to check the connection through the market both in the short and long run.

Through this Understanding of the efficient prediction of the market, it would be of assistance

to participants in the market since it will help them reply optimally when they are engaging in

bilateral agreements. Moreover, it will create self-confidence among the members to rely on

market fundaments.

References.
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Beidas-Strom, S., & Pescatori, A. (2014). Oil Price Volatility and the Role of Speculation.

Washington: International Monetary Fund.

Clayton, B. C. (2015). Market Madness: A century of oil panics, crises, and crashes.

Dahl, C. A. (2015). International energy markets: Understanding pricing, policies, and profits.

Frankel, E. G. (2007). Oil and security: The world beyond petroleum. (Springer e-books.)

Dordrecht: Springer Verlag.

International Business Publications, Inc. (2013). How to invest, start and run a profitable

business in the United Arab Emirates guide. Place of publication not identified: Intl Business

Pubns USA.

International, B. P. U. (2008). Turkey energy policy, laws and regulation handbook. S.l.Intl

Business Pubns USA.