O i l a n d t h eE c o n o m y

W W W . A D A M K U E T T E L . N E T

O V E R V I E W

From August of 2014 to January of this

year, the price of oil has trended

downward. Yet for the past nine months,

the price has been rising, and analysts

expect this trend to continue. What’s

behind these two different trends? These

slides will explore some of the factors that

determine the price of oil and how the

price affects the economy.

H O W T H E P R I C EO F O I L I SD E T E R M I N E D

In general, three things determine the

price of oil: supply, demand, and market

sentiment.

When the demand for oil goes up and

the supply is low, the price increases.

Conversely, when the supply of oil is

greater than the demand, the price goes

down.

Market sentiment is simply the attitude

that investors feel towards the market

or a particular security.

W H Y D I D T H EP R I C E O F O I LR E C E N T L Y D R O P ?

Investors think it will take years before

the price of oil rises to $100 per barrel

again.

One reason that the price fell in the first

place may be due to increased

production from the US and Canada.

As the amount of oil on the market

increased, the price began to fall.

R I S I N G P R I C E S

Numerous factors have led to the recent

rise in oil prices.

First, a number of oil companies have

either gone out of business or are

shutting down production. It’s just not

profitable for them to operate when the

price of oil is low. Their actions, in turn,

make the price go up.

Second, OPEC has hinted at a

production freeze multiple times this

year.

R I P P L E E F F E C T S

When the price is down consumers benefit

in various ways. For example, the price of

gasoline, diesel, and heating oil usually go

down as well.

Yet low prices also have many negative

effects. Countries that rely on oil

production to boost their economies, like

Venezuela and Nigeria, suffer

economically. Venezuela is also

experiencing political instability as a result

of the low prices.

Finally, when the price of oil is low, oil

companies see their profits decrease and

cut employee salaries.