Why Oil Prices are dropping Case Study Example | Topics and Well Written Essays - 500 words

Why Oil Prices are dropping - Case Study Example The case is even difficult for the countries, considering that for a country like Iran would need the price of oil to remain at $136, if it is to be able to support its growing economy (Al Mulla, n.p.). The major issue in this case is the reason why oil prices are dropping (Al Mulla, n.p.). This is a major issue, due to the fact that the dropping of the oil prices is sudden and also unexpected. The other major issue in this case is why the oil producing countries are not doing anything to correct the issue of dropping oil prices. Considering that the low process for oil is in fact harmful to the economies of these countries, it is expected that the oil producing countries should be doing something by now, to see the prices of oil increase to levels that can benefit their economies. The economic theory of demand and supply is applicable in this case. The theory states that when the supply is high, the prices of a commodity are low. However, when the supply is reduced, the demand for the commodity in the market increases, and with high demand in the market, the price increases. According to the economic theory of demand and supply, the oil producing countries are able o to see an increase in the prices of oil. This is because, the prices f oil are currently low, which then means that those countries can cut their supply of oil into the global markets to increase its demand, and consequently its price. However, as the case has turned out to be, the oil producing countries are not cutting down their oil supply into the market in order to increase demand and prices of oil. In this respect, it can therefore be observed that the conventional economic law of demand and supply is not operating in this case. The conclusion in this case is that the reason for the dropping oil prices is not the normal operation of demand and supply forces in the oil market. There are other unrelated factors that are accounting for this occurrence. The theory of