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OIL PRICES TO FALL IN THE LONG RUN
Case Study: To analyse whether the oil prices are going to fall in the long run
Introduction: The price of crude oil has been on a rise for over five years but this had never caused a drastic reduction in the demand of oil because most Asian governments have rigid price controls on petroleum products and the western countries were able to afford the prices. The case study presented here is to analyse whether the oil crude prices will fall in the long run and reasons are analysed based on economic concepts of demand and supply.
Analysis: It is being predicted that the oil prices from the current level of $ 130 per barrel will fall in the long run. The reasons cited for the same are analysed below:
1) The reduction in subsidies by the Governments: Today, as the price of oil has quadrupled, the Asian governments have reduced the subsidies as it was taking a toll on their GDPs eg., China, the fastest-growing consumer in the world, is raising the prices of petrol and diesel by 18% and of jet fuel by 25%. Oil producers are typically reluctant to raise domestic prices, but two of them - Malaysia and Indonesia - just have. Malaysia has increased prices by 41%, while Indonesia has raised the price of petrol by 33%, and of diesel and kerosene by 25%. Even the western countries are unable to endure the most of the high crude oil prices. Because of the steep increase in the prices, the demand is bound to fall.
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