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The general oil price has changed greatly over time. This means that price is very volatile and can’t be subject to monopoly. The ever changing prices is then attributed to majorly market forces of demand and supply. This article explains and shows how the demand and supply affects the oil price and also elucidates on the global issues affecting the demand of oil, and also explains the supply discrepancies of the oil resource.

The general oil price has changed greatly over time. This means that price is very volatile and can’t be subject to monopoly. The ever changing prices is then attributed to majorly market forces of demand and supply. This article explains and shows how the demand and supply affects the oil price and also elucidates on the global issues affecting the demand of oil, and also explains the supply discrepancies of the oil resource.

Classical economists defined supply as the amount of a commodity that is readily available for use and demand as the need or desire for use of that particular commodity. It’s important to realize that prices of the oil resource are not set or determined by a particular company, it is subject to market forces of demand and supply. Using this as a baseline, it’s therefore imperative to conclude that this great dependence that price has on market forces is the birth of the global demand and supply issues. Over the past decade, the oil price trends have shown a general decline and this can be attributed to a supply strain as shown in the figure below.

Classical economists defined supply as the amount of a commodity that is readily available for use and demand as the need or desire for use of that particular commodity. It’s important to realize that prices of the oil resource are not set or determined by a particular company, it is subject to market forces of demand and supply. Using this as a baseline, it’s therefore imperative to conclude that this great dependence that price has on market forces is the birth of the global demand and supply issues. Over the past decade, the oil price trends have shown a general decline and this can be attributed to a supply strain as shown in the figure below.





[[File:Economics_Fig-1.png|thumb|300px|Figure 1: crude oil prices trend since 1861]]

[[File:Economics_Fig-1.png|thumb|300px|{{figure number|1}}Crude oil prices trend since 1861]]

This supply strain is because just like land the oil resource is in fixed supply that means that at any time, there is only a limited amount that can be done readily available under the current technological conditions. Another reason to justify this general decline in prices is the improvement of technology levels for the other energy sources for instance bio energy and solar energy. This has to a minor extent also provided a substitution to the oil resource. To further justify the decline in prices, the cost of production has greatly increased over the past decade due to the fact that the conventional reserves that are easy to produce from are not in existence anymore and companies are going in for very unconventional reserves which are highly capital intensive with a high risk base just like the kashagan field in Kazakhstan.

This supply strain is because just like land the oil resource is in fixed supply that means that at any time, there is only a limited amount that can be done readily available under the current technological conditions. Another reason to justify this general decline in prices is the improvement of technology levels for the other energy sources for instance bio energy and solar energy. This has to a minor extent also provided a substitution to the oil resource. To further justify the decline in prices, the cost of production has greatly increased over the past decade due to the fact that the conventional reserves that are easy to produce from are not in existence anymore and companies are going in for very unconventional reserves which are highly capital intensive with a high risk base just like the kashagan field in Kazakhstan.

It’s important to also attribute oil price fluctuations to geo politics of the world. A case study can be pointed out that in the 1930s there was a fall in the oil prices which eventually picked up after the world war. The world war caused a disruption in the supply of the oil which caused a market shortage and yet the demand was still high. This can be seen in the graph below.

It’s important to also attribute oil price fluctuations to geo politics of the world. A case study can be pointed out that in the 1930s there was a fall in the oil prices which eventually picked up after the world war. The world war caused a disruption in the supply of the oil which caused a market shortage and yet the demand was still high. This can be seen in the graph below.

[[File:Economics_Fig-2.png|thumb|300px|Figure 2: crude oil price trend between 1870 and 2005.]]

[[File:Economics_Fig-2.png|thumb|300px|{{figure number|2}}Crude oil price trend between 1870 and 2005.]]

The oil price fluctuations can also be attributed to the ever increasing world population that according to the United Nations has risen from approximately 350 million in the early 1930s to approximately 7 billion in 2014. This therefore asserts a great demand of the oil resource under fixed supply that results in market shortage that causes the prices to change.

The oil price fluctuations can also be attributed to the ever increasing world population that according to the United Nations has risen from approximately 350 million in the early 1930s to approximately 7 billion in 2014. This therefore asserts a great demand of the oil resource under fixed supply that results in market shortage that causes the prices to change.