Assignment

By Ahmad Al Hajjar

ID# 20120058

1) Determinants that affect oil demand include but are not limited to:
- Political instability: Many oil-rich nations have unstable governments. Price hikes and
supply disruptions might result from political instability. Recent political unrest has occurred
in Libya, and nations like Iran and Iraq are not entirely stable.
- Oil price: Changes in demand and oil prices have a significant impact on the price of oil. Oil
is already priced at more than $100 per barrel due to supply disruptions currently in place
and rising demand. The expense of alternatives becomes much more alluring as oil prices
rise.
- Finite supply: There is a finite amount of oil. Estimates vary, but many people think that we
have almost achieved peak production (peak oil), and that over the next few decades, the
amount of oil will decline. Countries will be obliged to explore for alternatives as the supply
declines.
- Transportation costs: Due to its high price, it is also quite expensive to transport oil.
Concerns around transportation have risen recently.

2) Determinants that affect oil supply include but are not limited to:
- Oil Price: High Oil prices may encourage to start extraction and herby increase supply.
Contrary, low oil prices may force reserve owners to delay extraction until oil prices
become more profitable.
- Cost of extractions: Costs of extraction are rising as corporations must extract oil from
deeper underground and from locations that are more hostile to human habitation.
Because of the growing expenses of extraction, oil will eventually cost more and
become less desirable.

3) Speculators place trades based on their educated predictions of the direction they think the
market will take. For instance, a speculator may sell a stock short and wait for the price to drop
before buying it back at a profit if they believe it to be overpriced. The goal of hedging is to
lessen the related to a security's price increase or decrease. By holding position contrary to
those the position, the investor currently has, hedging aims to reduce the volatility that is
related to the price.
4) The main reasons causing oil prices to remain high are:
- Oil prices will remain high if it is purchased from farther regions. The longer the
distance the higher freight costs are, which in turn raise the price of the oil delivered,
are a direct result of this. Europe stopped importing from its neighbor Russia and is
seeking farther options after the Russian invasion of Ukraine.
 - It's likely that rising demand as well as supply disruption worries have pushed oil prices
higher. The rise in oil demand has outpaced any improvements in production and
excess supply. The rapid growth of developing countries, especially China and India, is a
major factor. Global demand for oil has increased because of the industrialization their
economies. Additionally, recent unrest in oil-producing nations has increased concerns
about supply interruptions.

5) I expect oil prices to hold steady this year and to drop down significantly in 2023. The recession
has hit several aspects of the global economy but has not yet affected oil prices. It is expected
and normal for oil prices to drop in a recession.