Question

The impact of oil on trade is immense and touches the economy of every country in the world. It is an economic resource and a geopolitical issue. Research and answer the following questions:

1. Where does the US get our oil from? How much of it is imported?

2. How does price impact your consumption? Relate it to opportunity costs.

3. How does price drive production? Research how speculation plays into the price?

4. Without Government incentives and with the price of gas low...Will people stop buying hybrids? The government played a big role in this by creating higher standards and financing some developments – is this good or bad (why?). Is it time to get rid of the incentives?

5. What about fracking-should we do it? What about the environmental stand point? Should the potential harm to the environment be calculated into the cost?

Answer 1

US gets majority of oil from inhouse oil fields manufacturing by companies like Shell, BP, Total, etc. And imports 19% of total oil of different quality of crude oil from Gulf Countries.

The cureent prices have surged as WTi crude oil prices have increased because of lesser production globally and hence consumption has fallen. Secondly due to availability of renewable sources and electrical cars the demand for pil related products has decreased. Opportunitycost has decreased as electric vehicles has increased in numbers.

Prices when on upward movement lead to highe reproduction of oil from different parts kf world through OPeC supply andnon OPeC members to drive down prices again. However increasing supply or its speculation also leads tolower prices in short run.

With low government incentives people shall stop buying hybrid oil as there are added miscellaneous costs when such fuels are used. Hence it is must for government to lrovide incentives to boost hybrid fuel usage and reduce environmental damages and overallcosts.

Fracking is different process altogether wherein USholds lesser competitive advantage and completely zero absolute advantage which can lead to high exploratory costs and investment costs and hence best to outsource such operations. This also leads to environmental imbalance and ecological disturbance and hence these are negative externality which can be incorporated as cost for making strategic decisions.