Oil and Business Term Paper Example | Topics and Well Written Essays - 1500 words

Oil and Business - Term Paper Example world(prenominal) trade slowed, but still rose because of emerging economies, particularly China and India. However, trade has been affected by the recent hike in oil prices. Furthermore, the exit states that fuel products (oil) saw a relatively lower growth than in previous years, which was due to the high prices of oil in the world commercialize. However, Organization of crude oil Exporting Countries (OPEC) has increased oil necessitate growth for 2010 (Brock). Oil is a major commodity in world-wide trade and is one of the most authoritative commodity to impact business, trade and hence, economies. Today, we will analyze the economics of oil, which would include a detailed analysis into oil prices, and its effects on business and planetary trade.In the international market, price for every good is determined by market forces. The capitalistic system gives freedom to the market forces, and prices are determined by demand and supply. Deman d is the willingness of the consumer to buy at a particular price, whereas supply is the willingness of the manufacturer to produce at a given price. For instance, an increase in demand for oil would increase prices, and an increase in supply of oil would contain or reduce prices. Significant growth in countries like China and brazil nut has increased recovery prospects, and hence increased demand. Thus, oil prices have been rising. Oil prices have declined since July of 2008 because of a slump in demand due to a sedate global recession. This was also one of the reasons why developed economies consumed less fuel than usual. b) Relationship between Oil and the U.S. DollarAlthough the price of oil in the international market is determined by market forces, it is also affected by the U.S. sawhorse. Oil and the greenback share a negative relationship. Traditionally, an increase in dollar value causes a decrease in crude price, and vice versa. People might wonder as to why oil affects the dollar and the other track round, but how come other currencies and oil price are not related. Commodities such as Oil and Gold are traded in the international market in U.S. dollars, and this has been agreed upon by the Organization of Oil-Exporting Countries (OPEC). Before 1971, the U.S. dollar was backed by gold, and changes in price of oil didnt have an effect on producer profits, as gold had intrinsic value. The U.S. Dollar could be liquidated into gold almost immediately. However, after 1971, dollar was made a fiat currency, and was printed without gold backing. This made it delicate for the American government to print money, and hence increase supply. In the last 35-40 years, dollar value has declined significantly amid ever-increasing money supply in the U.S. economy. Therefore, when dollar falls (real value decreases), producers ask for more money to compensate the loss in their real value assets, which are based on U.S. dollars. Thus, a decrease in the dollar has pushed oil prices up in the past decade or so. c) The role of the OPECBesides these factors, the OPEC, which holds two-thirds of the worlds fuel reserves, plays a vital role. Refining is done on a large scale in these countries, and they contribute a lot to the worlds oil