Oil Pricing Fluctuations in the World Economy

Oil pricing fluctuations are regarded to be one of the essential issues in the world economy. Initially, these issues are a matter of global discussion and of high importance for the world economy. It is emphasized that the pricing for the crude oil (as the main factor for oil and gasoline pricing) varies from time to time, and this situation is regarded to be normal. Thus, in 2007 the average price for the crude oil was close to $68 per barrel, and accounted for about 58% of the average retail price of a gallon of gasoline. In comparison with earlier periods, this price is at least 20% higher: thus, in 2005 the price per crude oil was $50 per barrel (53% of the retail price), and from 2000 the price was about $39 in average (48%).

As for the matters of supply and demand, it should be emphasized that the marketplace forces of supply and demand are claimed to regulate the price regulations of the fuel market. McConnell-Brue (2005) emphasizes the following: “If demand increases or if a disturbance in supply occurs, there will be upward pressure on prices. According to the same reason, if demand decreases or there is an oversupply of product in the market, there will be downward pressure on prices.”

Originally, these principles are often applied at the service station level as well. It is stated that if a retailer’s prices for gasoline are too high, and there is no regard for competition, the customers are free to use the services of the other station with the lower prices. If the customers are lost, the retailer may decrease prices in order to retain its customers. The fact is that these rules are applied on all oil and gasoline markets all over the world, however, the highest fluctuations are observed in the North American market region.

However, there are companies and market actors observed, who behave unethically, and do not lower their prices independently on the surrounding market, using long term contracts with the customers, unreasoned price increase and gasoline quality decrease. The fact is that the instances of unethical behavior are too numerous for being explained here, thus, the brightest examples only are given.

Relating these issues to the matters of TCO is generally explained by the fact of market monopoly. When the companies get united and start acting together, setting a monopoly for a particular sphere. The taxes are also may be regarded as the essential factor, impacting the price regulation issues. Thus, the graph represents the latest data on the issues of the prices and taxes for the gasoline fuel. Originally, due to the changes of federal energy legislation adopted in 2006, lots of states are phasing out the use of MTBE as a gasoline additive and switching to ethanol-blended gasoline.

Farm Commodity Prices

The commodity prices for the farm production are generally subjected to essential fluctuations. On the one hand it is explained by the fact that the farming goods can not be regarded as the goods with high elasticity, on the other hand, the prices can not be too high or too low, as the rapid fall or increase of the demand will be crucial for the allover market sector. Consequently, the market players are obliged to keep prices within certain frames.

The examples of such fluctuations are represented on the graphs:

The prices for corn were not subjected to essential fluctuations, as supply / demand balance was observed by the farmers, and this balance helped to keep the prices within the frames of $3 till 2007. However, the further increase was featured by the decrease of USD value on the currency market (Pindyck, Daniel, 2008).

The fluctuations on the of the prices for milk are reasoned by the changes in supply. The reasons for these changes are numerous, consequently, the changes in supply and the stable demand cause such variations.

As for the soybeans, it is necessary to mention that this situation reminds the situation with corn. However, the increase of the vegetarians caused a slight increase of demand, while the supply stayed the same.

Changes in Demand

Baby diapers, as the example of the demand change good may be regarded from the point of view of the changes in the demand levels. Originally, the amount of newborns changes from year to year, and the amount of the diapers supplied stays the same. Thus, the demand changes regularly, still, the manufacturers do not consider it necessary to change the price, consequently, and the equilibrium price stays the same, while the equilibrium quantity changes on a regular basis.

The demand for the retirement villages also changes because of the same reasons – the amount of the retirees changes from year to year.

References

McConnell-Brue, C.R. Principles of Economics. McGraw-Hill professional. 2005.

Pindyck, R.S. Daniel L.R. Microeconomics. New York Publishing, 2008.

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NerdyRoo. (2021, November 11). Oil Pricing Fluctuations in the World Economy. Retrieved from https://nerdyroo.com/oil-pricing-fluctuations-in-the-world-economy/

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