Quiz 1: Engineering Economic Decisions

Business

There is no answer for this question

There is no answer for this question

The approximate current price of oil is approximately $90.50 per barrel. Note that this is for the West Texas Intermediate (WTI) crude oil price. The price of Brent crude oil is approximately $110.00 per barrel. For all intents and purposes, the best thing is to keep it simple here and focus on the WTI crude oil price. There are a number of various reasons that could be said here but there are several key themes that are applicable to this situation. These include the following: - Geopolitical concerns (i.e. violence in oil-producing countries, elections, etc.). - Natural disasters which could affect supply and demand (i.e. pipeline ruptures and refinery closures due to hurricanes, etc.), - Supply and demand fundamentals (which can dictate price some of the time), - Supply disruptions due to equipment malfunctions (i.e. refinery closures due to fire or leaking pipes, seasonal maintenance, etc.), and - Speculation (which is one of the more common reasons why oil tends to rise and fall more than anything in this list).. Moving on to the third part of the question, Since oil is one of the most precious resources that we use on a daily basis, news for the good or bad can change the price in an instant. Plus, with the advent of electronic trading, the frequency of trading contracts that change hands is much quicker than the old days of paper shifting. Add in the fact that a news headline could cause a price to spike up or down in a matter of minutes adds even more uncertainty to the mix. The last piece of the problem here asks one to think about the consequences that may occur if one is optimistic about the price of oil. In other words, one could have three (3) paths that the price of oil could go over time. The lower priced option would be the optimistic level (and many people would love one for keeping this track). The normal route could factor in an average increase rate over time which may be measured by a cost index (as well as the other two options mentioned). The final route could be a pessimistic projection in which the price of oil would rise the most over time. Having these three (3) paths and not just one is a good answer to mention here because with the variability that was mentioned above, it is not very easy to conclude where it will go.