Goldman Sachs predicted that crude oil price would fall 200 and just as it appeared that...

Goldman Sachs predicted that crude oil price would fall $200 and just as it appeared that alternative renewable energy had a chance of becoming mainstream, the international price of oil fell by over 70%. After hitting the all-time high of $147 a barrel a month ago, crude fell to less than $40 a barrel. What explains this sharp decline in the international price of oil? There are several sources of oil or gas. The short answer is that the demand does not have to fall by a very sizeable quantity for the price of crude to respond as if it did. In the short run, the price of oil does not immediately lower consumption. It takes months or years of high oil price to inculcate habits of energy conservation. World crude oil price had remained over $ 60 a barrel for most of the slowdown in US, Europe and Asia along with dollar depreciation and commodity speculation have all had some role in the slowdown of crude prices in recent years. The supply of oil has been rising but not enough to catch up with the rising demand, resulting in an almost vertical escalation in its price. The number of crude oil futures and options contracts have led to significant speculation in the oil market. In comparison, the role of the organization of petroleum exporting countries (OPEC) in fixing crude price has considerably weakened. OPEC is often accused of operating as a cartel restricting output, thus keeping prices artificially high. It did succeed in setting the price of crude during the 1970s and the first half of the 1980s. But with increased futures trading and contracts, the control of crude pricing has moved from OPEC to banks and markets that deal with futures trading and contracts. It is true that most of the exporting regions of the world have remained politically unstable, fueling speculation over the price of crude. But there is little evidence that the geopolitical uncertainties in west Asia have improved slide of oil price. OPEC has, in fact, announced its decision to curtail output. However, most oil importers will leave a sigh of relief as they find their oil import bills decline except for those who bought options to import oil at prices higher than market prices. Exporting nations, on the other hand, will see their economic prosperity slip. Relatively low price of crude is also bad news for investments in alternative renewable energy that cannot compete with cheaper and non-renewable sources of energy.

Which has the impact of the drop in oil prices (1 Mark)