Oil prices are frequently described as being volatile. They are subject to large variations in prices over time. In the first three months of 2011, Brent crude oil was quoted in the news as being up 28%.
What factors are likely to affect the price of crude oil?
Draw demand and supply diagrams to show the effect of:
- Rising US demand for oil
- OPEC relaxing quotas on oil to try to prevent the oil price rising further
- Civil unrest in Libya, Bahrain and Syria
What would you expect the value of the price elasticity of demand for oil to be? Explain your answer.
Analyse the impact that the higher oil price is likely to have on:
- Individual national economies
- The global economy