Monday Homework:

1) Explain why oil prices have been rising. Use a diagram to illustrate your answer:

The oil prices rise, due to the increasing demand, which has recently gone up due to the cold weather forecasts. When it is cold, people will have to turn their oil-consuming central heating on, so they will need more of this resource.  The prices also rise because of the SE speculators.

Here are the oil prices (in USD $):

Date Value
1998 12.28
1999 17.48
2000 27.6
2001 23.12
2002 24.36
2003 28.1
2004 36.05
2005 50.64
2006 61.08
2007 69.08
2008 94.45
2009 61.06
2010 77.45
2011 107.42

2) How can the concepts of price elasticity of demand, income elasticity of demand and price elasticity of supply help to explain the magnitude of oil price movements?

Demand for the oil is little elastic. It means, that whatever the price is, people will have to buy it. This fact comes from the reason that there is no equally efficient and common source of acquireing energy as petrol. That is why the prices of the crude, over the longer time period, gradually rise (data above).

3)  Examine what is likely to happen to oil prices over the coming months. What are likely to be the most important factors in determining the direction and size of the price movements? Distinguish between demand-side and supply-side effects in your answer.

Experts claim that by the end of the year, the price of oil will have increased to 100$ a barrel. It is mostly because the winter in the developed countries is aproaching so the demand for oil will increase. The OPEC countries have the limits of production, and the demand for oil constantly increases, so in order to sustain thecurrent price levels, they will have to increase it.

4) What are ‘crude futures’? Explain how actions in the futures market are likely affect spot prices.

5) To what extent can OPEC control oil prices?

As an organisation, which provides 40% of World's petrol, OPEC has a considerable influence on the oil prices. Thay can limit the production, in order to lower the supply, which will make the oil more expansive.

6) If crude oil prices go up by x%, would you expect petrol station prices to go up by approximately x%, or by more than or less than x%? Explain.

I would expect the prices to go up more than x%, mainly because the market crude prices do not involve the processing to petrol and transport costs. 

7) Why have central heating oil prices risen by around 70% of over the past three months? What are the implications of your answer for the type of market structure in which central heating oil companies are operating?

The oil companies, which have plently of oil on stock, wait until winter and together increase the prices at the same time. They know that people will need the heat so they can do whatever they want. This people do not cara, whether smoe poor old people will freeze themselves to death because they only thing relevant for them is the profit.