Business Environment – Oil Crisis

Andre Fernandez 04
Revati Ranade 33
Satyamvada Sharma 42
Vaidehi Naphade 49
Oil Price History
Oil Price History
Oil Prices -Two Centuries
Oil: Pricing Determinants
• Prices have always been volatile
• Oil makes up half the cost of gasoline
• Gasoline tends to be an inelastic commodity
Points that disrupt/determine the supply (and cost) of oil

• Extraction – 40%
• Distribution – 15%
• Refining – 15%
• Taxes
Important influencers of prices globally

• Production
• Natural causes
• Inventory
• Demand
What oil prices have done to India
• First oil shock - October 1973
• Second oil shock - 1979-80
• Gulf crisis sparked off a sharp spurt in oil prices
Oil price and the $700B bailout
• Danger of devaluation
• Prices kept artificially low
• Bought and sold in dollars
• The dollar is becoming "funny money"
Fuel Efficient Cars Lead To Lower Oil Prices

• 1% reduction consumption = oil price drops of 2%

• Economic benefits of energy efficiency measures
seriously underestimated
• Environment will pay a high price for cheaper fuel
• Advocating higher fuel taxes
Peak Oil
Peak oil is the point in time when the maximum rate of
global petroleum extraction is reached, after which the
Rate of production enters terminal decline
PEAK OIL OCCURS WHEN THE DECLINES OVERWHELM THE INCREASES.
Peak Oil - contd
• Earth's endowment of oil - 2 tr barrels of recoverable oil
• Half is used up
• Consumption is currently 31 billion barrels each year
• Oil will be gone in 32 years at current rates
• There will be demand for oil, even if it is expensive
• Very little oil found within past 30 years
• Oil production in Middle East and Russia not yet peaked
• Peak oil production does not mean the oil is gone
Peak Oil
• World peak oil production reached its peak in 2005
• Oil prices will decline leading to a fall in demand
• Prices will fall once again causing demand to pick up
Swenson’s law:

This graph depicts possible

alternative scenarios for humanity
as oil goes into decline over the
next few decades.

To avoid deprivation resulting from the exhaustion of non-renewable resources,

humanity must employ conservation and renewable resource substitutes sufficient
to match depletion.
HUBBERT PEAK OIL THEORY
• Oil depletion is inevitable
• The maximum production of oil from a field
• The production of an oil field increases exponentially
then terminally declines
Have we reached the peak oil??
• An irreversible decline in the oil production
• Peak oil occurs when 50%of reserves have depleted
Politics in Oil
• Quota agreements
• Peak oil
• Pipeline diplomacy in Central Asia
• Petroleum politics
• Politics of alternative fuels
• Politics of Oil Nationalization
Alternative Resources
• Renewable energy •Bio-fuel:
a) Liquid Bio Fuels
• Wind power
b) Solid Bio-fuels
• Hydro Power c) Bio Gas

• Waste recycle •Geo-thermal

• Solar power •Other Alternatives
Thank You