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50% of world oil prices drop in September 2014

Section 1:

As the school year begin, the cost of tuition rose, but more importantly the world’s oil priced plumped
by over 40%. Many speculators have been spreading rumors that the drop in price is just a way to stop
terrorist groups like Saudi Arabia’s ISIS and Afghanistan’s Taliban from making money by selling oil
through the black markets. However, the truth lies within the hands of the Organisation of Petroleum
Exporting Countries. They have control over of more than 40% of the world oil, so they have a huge
control over the price of oil. Therefore, small mishaps such as “failing to reach agreement on production
curbs, sending the price tumbling,” (The Economist 2014) can happen. Nevertheless, the drop in price of
oil is also heavily related to concept of supply and demand. In years past, the weather is a key role in the
high demand for oil, as it brings upon heat to much needed northern hemisphere, while the summer, oil
is widely used as a way to power air conditioners. Therefore, people are probably believe that the cost
of oil should be steady or increases and demand is relativity increase do to nature’s harsh weathers but
that is not the case. Nonetheless, factors such as economy, environmental concern, health, decrease in
oil supply and alternative energy sources also play a key role in oil prices. Similarly, these factors such as
“weak economic activity, increased efficiency, and a growing switch away from oil to other fuels…
[America] now imports much less, [can] create a lot of spare supply,” (The Economist, 2014) that has led
to last year’s oil price decrease. More specifically, drop in oil prices are from “turmoil in Iraq and Libya—
two big oil producers with nearly 4m barrels a day combined—has not affected their output. The market
is more sanguine about geopolitical risk….Finally, the Saudis and their Gulf allies have decided not to
sacrifice their own market share to restore the price. They could curb production sharply, but the main
benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil
prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to
get out of the ground,” (The Economist 2014). Finally, let’s not forget about the USA investment in shale
extraction and offshore drilling has cause western countries to invest in this oil which is cheaper as there
is no war involved, less transportation charge and no tariffs, which in the end is leading to cheaper oil.
Therefore, Saudi Arabia is the actual winner, as they sell their oil for a far more marked up price,
allowing them to make money, while everyone else lose money as they mark oil prices with a
discounted price. Consequently, Saudi Arabia should have reduced their funds when the price dropped.
In the end, this school year has brought the world more together as many world decisions, financial
status and investments has allowed this scarce resource to decrease in market value.

Section 2:
When looking at this issue from a local and global point of view, there are the positive and the
negatives. On the locals view, this downward trend is seen as a miracle. As locals have been spending
loads of money for years on this perishes resource, even though they have the choice to save their
money by investing it cheaper reusable and sustainable energy source. For example, an electric car, it
might cost you on average $32,000, but over the years it will be worth it as you do not have to pay the
high price of oil and still own your vehicle once this non-renewable resource is gone. Now back to topic,
locals also have ramped up their oil consumption as they take advance of this limited time discounted
prices. Which look from at far, as caused they do not actually save money, which leads to local economy
growth and decrease in supply of oil. This means locals are in for a win, lose situation.
On the other hand, the global view indicates that there are far more harsh implication that are taking
effect. Firstly, high oil prices is the reason why many countries today are economically stabile, social
programs and foreign adventure are happening. For example, “Russia (which is already hit by Western
sanctions following its meddling in Ukraine) and Iran (which is paying to keep the Assad regime afloat in
Syria),” (The Economist 2014). Secondly, even though from a local point of view that lower price causes
more demands however, “low price leads to a whole series of secondary effects (debt defaults resulting
from deflation, job loss, collapse of oil exporters, loss of letters of credit needed for exports, bank
failures) that indirectly lead to a much quicker decline in oil production,” (Our Infinite World 2014).
Therefore, these factors cause more oil not be extracted as much which can be seen as a positive, but
cause economic stress. Thirdly, the most devastating impact is the global recession and even depression
that can occur. For example, there will be cash deficits on trading, as more exporting will be done than
oil sold. Another example, is that countries have more war, as there only source of income is being
taking and no money is being made, making people frustrated. More specifically, “there is the possibility
of increased unrest in the Middle East, as oil-exporting nations find it necessary to cut back on their food
and oil subsidies. There is also more possibility of warfare among groups, including new groups such as
ISIL. When everyone is prosperous, there is little reason to fight, but when oil-related funds dry up,
fighting among neighbors increases, as does unrest among those with lower subsidies,” (Our Infinite
World 2014). Finally, decrease in oil prices means deflation in prices, causing huge debts. For example,
“If oil prices rise, so do food prices, and the price of making most goods. Thus rising oil prices contribute
to inflation. The reverse of this is true as well. Falling oil prices tend to lead to a lower price for growing
food and a lower price for making most goods. The net result can be deflation. Not all countries are
affected equally; some experience this result to a greater extent than others,” (Our Infinite World 2014).
Thus, oil prices cause a dominoes effect on other prices, so if oil decrease everything else decrease in
prices casing more deficits than profit, which is a global issues.

Section 3:
As oil continues to decrease, it is causing lots of more problems that the word needs to address
for a better future. When oil prices were high there were positive effects happening. They included
economic growth, slow decline in oil consumption, job increases and more oil pumped. As it seems that
just increasing the price again is the perfect solution, it does has its flaws. It consists of more oil being
pumped, less jobs in US shale extract and offshore extraction, war, or economies based on an
unpredictable and unstable nonrenewable resource. Therefore, there has to be a better solution. One
solution is to make the world strive toward renewable energy sources such as wind, solar, hydro and
geothermal. These energy sources is a stable energy source that will be here after oil runs out which will
allow countries to recover after the devastating loss of their valuable resource. This will increase jobs,
economy, it is always available, science and technological advancement can find ways to make it
cheaper. Another solution that non-Americans have discovered that USA needs to increase their import
of oil and decrease their exports. Similarly to the energy collective, they believe “the United States
should be cutting back in its oil production, in response to low prices. Of course, as indicated above, US
oil majors (like Shell, Chevron, and Exxon) are cutting back on investment in new fields, and this is
eventually likely to lead to lower production,” (Isaac Arnsdorf 2014). Thus, the USA believes that they
will become the riches oil country as they continue to sell their cheap oil, has left them countries trying
to make a living with their oil. However, from the look at the current make is not help what so ever. In
the end, many speculators and economist believe that oil will rise in price again to offset the debt that
has be cumulated. This is a basic principle of economics and supply and demand. As cheaper prices
cause more consumption of oil, they will have no choice but to increase the price in order make a profit,
and compensation for the depletion of oil. However, economics rule of feedback indicates that “demand
doesn’t pick up quickly as prices drop,” (the energy collective 2014). As this might seem as a problem
but, “Lower prices could help stimulate the market, according to Citigroup and Goldman Sachs Group
Inc.” (Isaac Arnsdorf 2014). This is demonstrated by as, “The big driver of demand-related headlines has
been Chinese growth and Europe slowing… but I don’t foresee enough of an uptick to alter the price
dynamic,” (Isaac Arnsdorf 2014). In the end, our bad habits of greed of oil has caused issues like
decrease oil prices, but if we change toward a more sustainable future we might be able to save our
economy. If there still are some positive toward decrease oil prices.

Bibliography
Arnsdorf, I. (2014, December 23). What's next for oil as low prices extend into 2015: The five key things
to watch. Retrieved February 5, 2015, from
http://business.financialpost.com/2014/12/23/whats-next-for-oil-as-low-prices-extend-into-
2015-the-five-key-things-to-watch/?__lsa=6633-e82c
L, E. (2014, December 8). Why the oil price is falling. Retrieved February 3, 2015, from
http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-4
Ten Reasons Why a Severe Drop in Oil Prices is a Problem. (2014, December 7). Retrieved February 4,
2015, from http://ourfiniteworld.com/2014/12/07/ten-reasons-why-a-severe-drop-in-oil-prices-
is-a-problem/
Tverberg, G. (2014, November 7). Oil Price Slide: No Good Way Out. Retrieved February 5, 2015, from
http://theenergycollective.com/gail-tverberg/2153386/oil-price-slide-no-good-way-out

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