Changes

The supply of oil is largely dependent on the production of the discovered oil fields within a given time. With new discoveries found in countries such as Uganda, Kenya, and Kazakhstan, the rate of production is expected to increase. In addition, petroleum has a short term price elasticity of supply meaning that changes in prices have a great impact on supply of the oil. It is also important to note that the supply curve of oil can shift unexpectedly and substantially within a given time. Thus the price of oil is volatile.

The supply of oil is largely dependent on the production of the discovered oil fields within a given time. With new discoveries found in countries such as Uganda, Kenya, and Kazakhstan, the rate of production is expected to increase. In addition, petroleum has a short term price elasticity of supply meaning that changes in prices have a great impact on supply of the oil. It is also important to note that the supply curve of oil can shift unexpectedly and substantially within a given time. Thus the price of oil is volatile.

The geopolitical situation is one of the major factors that affect the supply of oil in a particular region for example the civil war in Libya in 2011 caused a noticeable reduction in oil supply. Worldwide the first oil shock in 1973 brought about the quadrupling of crude oil prices that occurred between October 1973 and January 1974. It was associated with the Yom Kippur War and the Arab Oil Embargo which caused a major scarcity in the world supply. The second oil shock of 1978-81 brought up the tripling of oil prices between October 1978 and October 1981 and was associated with the Iranian Revolution and the Iran-Iraq War, which also brought about shortages in supply. The third oil shock of 1986 led to the collapse in oil prices in 1986 following a major change in Saudi Arabia’s oil policy, which brought about over flooding of the market.<ref>Blanchard, O. J., and J. Gali, 2007, [http://crei.cat/people/gali/pdf_files/bgoil07wp.pdf The Macroeconomic Effects of Oil Shocks: Why are the 2000s So Different from the 1970s?], National Bureau of Economic Research, working paper no. 13368.</ref> Currently, the Islamic crisis (Isis) in Syria has cut the oil production by about 85% due to the significant destruction of energy infrastructure. In addition, the ongoing Russia and Ukraine standoff has brought about a worrying geopolitical situation reducing on the supply of oil.

The geopolitical situation is one of the major factors that affect the supply of oil in a particular region for example the civil war in Libya in 2011 caused a noticeable reduction in oil supply. Worldwide the first oil shock in 1973 brought about the quadrupling of [[crude oil]] prices that occurred between October 1973 and January 1974. It was associated with the Yom Kippur War and the Arab Oil Embargo which caused a major scarcity in the world supply. The second oil shock of 1978-81 brought up the tripling of oil prices between October 1978 and October 1981 and was associated with the Iranian Revolution and the Iran-Iraq War, which also brought about shortages in supply. The third oil shock of 1986 led to the collapse in oil prices in 1986 following a major change in Saudi Arabia’s oil policy, which brought about over flooding of the market.<ref>Blanchard, O. J., and J. Gali, 2007, [http://crei.cat/people/gali/pdf_files/bgoil07wp.pdf The Macroeconomic Effects of Oil Shocks: Why are the 2000s So Different from the 1970s?], National Bureau of Economic Research, working paper no. 13368.</ref> Currently, the Islamic crisis (Isis) in Syria has cut the oil production by about 85% due to the significant destruction of energy infrastructure. In addition, the ongoing Russia and Ukraine standoff has brought about a worrying geopolitical situation reducing on the supply of oil.

Another major influence on supply of oil is the production restrictions by the Organisation of Petroleum Exporting Countries (OPEC) on its member states like Libya, Iran, among others, on supply. OPEC's mission is to coordinate and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital to those investing in the petroleum industry. It is therefore OPECs responsibility to regulate the oil supply on the global markets to ensure stable market conditions (International Energy Agency, 2007).

Another major influence on supply of oil is the production restrictions by the Organisation of Petroleum Exporting Countries (OPEC) on its member states like Libya, Iran, among others, on supply. OPEC's mission is to coordinate and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital to those investing in the petroleum industry. It is therefore OPECs responsibility to regulate the oil supply on the global markets to ensure stable market conditions (International Energy Agency, 2007).