Discussion assignments will be graded based upon the criteria and rubric specified in the Syllabus.
For this Discussion Question, complete the following.
1. Read the two articles below that discuss why fuel prices fluctuate. Research two of these types further.
2. Locate two JOURNAL articles which discuss this topic further. You need to focus on the Abstract, Introduction, Results, and Conclusion. For our purposes, you are not expected to fully understand the Data and Methodology.
3. Summarize these journal articles. Please use your own words. No copy-and-paste. Cite your sources.
4. This is due by 11:55pm on the deadline specified in the Course Schedule.
5. During the second week of the Module, you will need to reply to the posts of two of your peers. Your replies must focus on increasing knowledge of the class and must advance the discussion further. Simply affirming your peers does not count as a substantive reply.
6. The replies are due by the deadline specified in the Course Schedule.
Please post (in APA format) your article citation.
1st student Response (Mani Kiran Arigela):
Fuel prices are dynamic, and as a result, they often fluctuate since they are subject to global demand and supply. The main influencer of global fuel prices is the OPEC that is the Oil Producing and Exporting Countries. OPEC is made up of 13 fuel-producing countries. OPEC controls nearly 80% of the fuel supplies globally and therefore influences fuel prices globally. However, there are other factors that guide the pricing of fuel in the world.
Fuel is a commodity with global demand since it powers, industries, vehicles and is also used for the production of energy. Fuel prices are therefore a matter of global concern since the availability of scarcity of fuel affects the growth, stagnation or the decline of the global economy. This paper looks into the factors that cause the fluctuation of fuel prices.
OPEC determines fuel prices through escalation or de-escalation of fuel production. The de-escalation of fuel production leads to a higher demand for fuel and, subsequently, an increase in fuel prices globally (Caldara, Cavallo & Iacoviello, 2019). The excess supply of fuel into the market causes a sharp reduction in fuel prices globally.
Politics and natural disasters are also factors that affect the prices of fuel globally. For instance, hurricane Katrina in 2005 in the Southern US made the fuel prices to decrease by 20% (Caldara, Cavallo & Iacoviello, 2019). Natural disasters destroy fuel production and storage facilities, therefore, making fuel production expensive. Political instability causes the fluctuation of fuel prices. In the Middle East, for example, unrest between Afghanistan and Iraq made the fuel prices to shoot up. Political instability, particularly in the Middle East affects the fuel prices greatly since the Middle East controls the largest section of fuel supply globally (Cevik, Cevik & Dibooglu, 2020).
Production and storage of fuel affect fuel prices. A classic example is that fuel production is cheaper in the Middle East since the extraction cost is cheaper, while in Canada, it is expensive since it is costlier to extract fuel from Alberta’s fuel sands; hence Canada’s fuel is more expensive. When there is an overproduction of fuel and little demand, there is a higher demand for fuel storage facilities, and this makes fuel prices go down so that fuel producers can create more storage space for fuel. Fuel that is located deep in the tar sands, is more expensive since it is costly to extract, thus leading to the increase of the fuel prices due to the increased cost of production.
There is need for global administrative measures that ensure that OPEC countries should not hoard fuel even if they control 80% of the global fuel supply. The policies that should govern fuel prices should cushion against the extremes of oil prices falling too low or fuel prices retailing at relatively unaffordable rates.
Caldara, D., Cavallo, M., & Iacoviello, M. (2019). Fuel price elasticities and fuel price fluctuations. Journal of Monetary Economics, 103, 1-20.
Cevik, N. K., Cevik, E. I., & Dibooglu, S. (2020). Fuel Prices, Stock Market Returns and Volatility Spillovers: Evidence from Turkey. Journal of Policy Modeling.
Student Response 2 (Sharat Chadra ):
In oil-acquiring making economies, the lessening in oil prices should reinforce more grounded advancement, reduce extension, and improve outside and financial modifies, which ought to cut down macroeconomic vulnerabilities and, along these lines, increase methodology room. Low oil prices furthermore put plummeting center around other product prices, especially those of vaporous petroleum, fertilizers, and food things. Lower oil prices could in like manner give extra monetary space that could be used to animate activity if important. In oil-exchanging countries, the space for move will be progressively limited (Neukirch, 2016).
Cost of irregular oil creation is most likely going to diminish as new progressions will lessen the cost of examination and extraction. The move in authentic compensation from net oil-conveying economies, which will all in all have higher ordinary saving rates, to net oil-acquiring countries, where the fondness to consume will when all is said in done be higher, should all around result in more grounded overall enthusiasm over the medium term. In oil-conveying countries, in any case, lower oil prices may trigger sharp cash adjustments, re-evaluating of credit and sovereign risk, and contractionary financial game plan measures, with the exception of if bolsters are available to shield utilizations from the abatement in control salaries from the oil part (Potolias, 2014).
Lower oil prices could moreover diminish the open entryway cost of biofuel creation. In any case, the declining connecting with nature of biofuels creation in a circumstance of low oil prices will obligated to be calmed by current methodologies. An abatement in oil prices, as such, presents an open entryway for tremendous quantities of these countries to reduce these allotments and in the process clear long-standing twists related with them. Private foul oil is routinely held away in the United States, or it is refined into oil based items and sold locally or conveyed. As the prerequisite for imported gas constructs, the United States may defy issues in satisfying enough imports, in any occasion in specific bits of the country.
Neukirch A, Wein T. Price Gouging at the Pump? The Lerner Index and the German Fuel Market. Review of Economics/Jahrbuch für Wirtschaftswissenschaften. 2019;70(2):157-192. doi:10.1515/roe-2019-0016.
Potolias C, Mourmouris JC, Fantidis JG, Bandekas DV, Kourtidis A. Cash related Crisis in Greece, Economical Evaluation of Replacement of Heating Diesel Oil with a Heat Pump System. Building Economics. 2014;25(2):141-151. doi:10.5755/j01.ee.25.2.3442.