Essay: How Global Economic Conditions affect the Price of Crude Oil

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Essay: How Global Economic Conditions affect the Price of Crude Oil

Sample Essay

The changes in the global economic conditions also affect the price of the crude oil adversely or favorably. For example, the war in the Middle east and in Congo, where Marathon imports its crude oil from along with the global economic meltdown that was catalyzed by the bursting of the housing bubble in 2007 have made the prices of the crude oil to rise considerably. This has been reflected in the prices on the oil pump in the US. Further, changes in other factors within the US affect the prices of gasoline either favorably or adversely. This mainly depends on the retailer objectives, however, there is a general observation that most businesses objectives is to increase the returns on investments, this means any rise on the price of the crude oil results to an increased price of the gasoline (Marathon Petroleum Company, 2009).

The prices for the crude oil can be affected by the supply and demand of the prices and this directly affects the prices of the gasoline. Interruption of the pipeline, increased cost of transportation and unfavorable political environment directly results to increased prices of the crude oil and thereby increasing the prices of the gasoline too. Though the prices of gasoline are directly affected by the crude oil prices, in rare occasions, there is an inverse relationship. The inverse relations are triggered by the level of competition in the industry. A retailer may intend to lower the prices to maintain its market share on the gasoline and make losses while making profits on other products. A new firm entering the market may sell gasoline at lower prices irrespective of the rise of the prices of the crude oil in order to establish a broad customer base and increases the prices after some time.

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