Hello, my name is Mr. March and I'm here today to teach you all about "Changing oil supply and prices." So grab everything that you need for today's lesson and let's get going.

So by the end of today's lesson you will be able to explain how changing international relations and economic factors can affect oil supply and oil prices.

There are four key terms for today's lesson.

Those are supply, demand, diplomatic relations and recession.

Supply refers to the amount of something, for example, oil, that is available to buy.

Demand refers to how much of something, for example, oil, that people want to buy.

Diplomatic relations refers to how well or badly countries get along with each other, which can affect trading relationships of supply and demand.

And finally, recession refers to a period when economies stop growing temporarily and people spend less.

There are two learning cycles for today's lesson and we're gonna start with learning cycle one, which is all about oil and international relations.

So let's start this lesson by imagining it's 2019, I want you to cast your mind back to 2019.

Now I want you to also imagine that you are an oil trader and it's your job to predict what will happen next to oil prices.

Now on the screen in front of you there you can see a graph and it's showing us the oil price from 1960 all the way up to 2019, current day in this scenario.

So what I'd like you to do then is think about what you think will happen to oil prices in 2020.

You may like to pause the video here whilst you consider your answer to that question.

Well, Laura and Sam have also been thinking about this question.

Laura, she thinks that the oil price will go up in 2020.

"Prices have always been over $500 since 2006, so 2019 is probably just a blip." Sam, on the other hand, says, "I'm not sure.

Prices do seem to go up and down a lot.

I might bet on another fall." Well, what did you think? And let's find out together.

What did then happen to oil prices in 2020? Well, COVID-19 happened.

COVID-19 lockdowns meant that a lot less oil was actually used.

Flights were cancelled, we were all in lockdown, weren't we? We were all told to stay at home, and this meant that a lot less oil was used as a result.

And as a further result, prices fell.

Oil prices are affected by something called supply and demand.

For example, if there's not enough oil to meet demand, prices will increase.

So here we have a lovely illustration showing how demand is outstripping the supply, which means that prices rise because there's more competition for the limited supply, therefore the seller can really sell it at whatever price that they deem necessary.

On the other hand, if oil supply is too high, there'll be more oil than people want.

That should make oil prices fall.

Here's another lovely illustration of that.

This is where we see supply outstripping demand.

So there's too much oil or there's more oil than is actually needed, therefore the price falls as a result.

So a quick learning check, it says, true or false? An increase in the supply of oil at a time when the demand for oil hasn't changed should mean a fall in the price of oil.

So what you need to do right now is pause the video here, read that statement really carefully, and then decide and select your answer.

And the correct answer is true.

Now once again I'd like you to pause the video whilst you consider why or how that statement then is true.

And the reason it's true is if there is more oil than is needed to meet the demand for oil, then oil producers will need to compete with each other to sell their oil.

The way that they will do this is to actually just lower their prices to encourage people to buy from them.

So really well done if you were able to get those two answers correct.

Now, oil supply and oil prices are affected by many different factors and they can come under two different umbrellas, the first of which is international relations, and that's what we're gonna look at in the first half of this lesson.

And also economic factors, and we'll look at that in the second half of this lesson.

With regards to international relations then we're looking at things such as diplomatic relations, the relations between different countries, as well as conflict potentially between different countries.

With regards to economic factors, then we're looking at things such as recessions as well as booms in the economy, so ups and downs in the economy, as well as over or undersupply of oil in this example.

Oil-producing countries naturally like oil prices to stay high so that they can generate more money and more profit, and they're really clever in the way that they do this because if they work together, they can agree to manage the supply of oil so it's always a bit lower than the demand for oil.

OPEC is a group of 12 oil-producing companies and you can see their spread across the world on the map in front of you.

They also work with 11 other OPEC+ countries.

When oil prices fall, OPEC can actually cut production of oil so that the supply is below demand, and thereby keep that oil price nice and high for them to generate income and profit.

After demand for oil fell during COVID-19 lockdowns, OPEC and OPEC+ agreed to cut oil production by 10%.

Good diplomatic relations between oil-producing countries allowed this decision to actually happen and it was even supported by other countries, for example, the USA.

OPEC's actions can affect diplomatic relations between countries in negative ways too.

The spike in prices came after OPEC countries said they would stop supplying the USA with oil.

OPEC opposed the USA's support for Israel in the Yom Kippur War in 1973.

The USA was, needless to say, extremely angry about that decision.

Wars, invasions, and revolutions affecting oil-producing regions often cause price changes too, and the graph in front of you does a wonderful job in showing those different events through history.

Let's have a look at those now.

So we've already looked at the Yom Kippur War in Israel in 1973 and its effect on the oil price.

Let's have a look at some more.

Well, the Iranian Revolution in 1979 also caused a massive change in the oil price.

The Iraq invasion of Kuwait, which is again another oil-producing country, in 1990, caused a change in the oil price.

Once again, the Iraq War in 2003 caused a change in the oil price.

The Arab Spring during the 2010s caused a dramatic change in the oil price.

And most recently then, the Ukrainian war in 2022 caused a significant change in the oil price.

So conflict in oil-producing regions can reduce the supply of oil, and oil traders then worry that demand will get much higher than supply, and therefore this pushes the oil prices up sharply.

So time now for a learning check and it says to name the country marked with a question mark on the map in front of you.

A war actually happened here from 2003 and it led to an increase in oil prices.

So what you need to do right now then is pause the video here and read through the four options and select what you think is the correct answer.

And the correct answer was B, Iraq.

Really, really well done if you were able to select B as the correct answer.

After Russia invaded Ukraine in 2022, diplomatic relations, needless to say, between Russia and the EU, or the European Union, became extremely tense and very bad.

The EU actually decided to cut the amount of oil it was importing from Russia and the EU then was forced to pay more to get oil from other suppliers to fill that void that had previously been supplied by Russia.

This then increased the oil price.

Again, true or false, a learning check.

Oil prices are only affected by diplomatic relations when there is a war or revolution in an oil-producing region.

So then what you need to do is pause the video here whilst you consider and then select your answer.

And the correct answer was false.

Now once again I'd like you to pause the video whilst you consider as to why this statement is false.

And the reason it's false is that, yes, while wars and revolutions are examples of how conflict and international relations can lead to oil price changes, the co-operation between OPEC members to manage oil supply shows how diplomatic relations between oil-producing countries can also affect oil prices.

So it doesn't only need to be in times of revolution or conflict that the oil price can change, it can happen even during peacetime through good diplomatic relations between different countries and different oil suppliers.

So really, really well done if you were able to get those two answers correct.

We're now onto our one and early practise task for the first learning cycle, and it sets to explain one way in which international relations can affect the supply and price of oil, and I would like you to try to refer to this graph in your answer.

So please then pause the video here whilst you attempt this practise task.

Best of luck.

And now for some feedback, and your answer may have included the following.

So I've said that conflict in oil-producing regions can affect the supply and the price of oil.

For example, in 1973 Israel, there was a war called the Yom Kippur War.

The USA supported Israel, but OPEC opposed Israel.

OPEC said it would no longer supply the USA with oil, which affected the supply to the USA.

The graph shows that this had a massive impact on oil prices.

In 1973, the price was around 125 US dollars per cubic metre of oil.

By 1974, this had actually increased to around 450 US dollars.

Alternatively though, you may have used a different example.

For example, diplomatic relations between countries can affect the supply and price of oil.

For example, in 2020, the demand for oil fell a lot because of COVID-19 lockdowns.

Oil production was still high though, which meant prices fell because demand was lower than supply.

The 12 OPEC countries and the 11 OPEC+ countries cooperated to reduce production by 10%.

This cooperation is an example of good diplomatic relations.

And there was also a lot of support for this move by other countries too, such as the USA.

So really, really well done if you were able to include anything like that in your own answer.

On now to our second and final learning cycle, and this is all about oil and economic factors.

Let's now look at those economic factors which can really affect oil prices, looking at recessions and economic booms, so downturns and upturns in the economy.

So when countries have booms, the demand for oil increases.

So when times are good in the economy, the demand for oil increases.

The increased demand means higher prices of oil.

Higher oil prices may encourage more oil production.

Increased oil production increases supply.

And if supply exceeds demands, oil prices will fall again.

This is why OPEC and OPEC+ countries sometimes decide to reduce production during economic booms, thereby keeping the price nice and high.

So let's have a look at this graph in front of you, which is showing GDP growth through the years.

Now recession show up as a 0 or a minus in GDP growth on this graph.

Now remember, a recession is a downturn in the economy.

Most recessions affected individual countries, but some recessions are on a much more global scale.

Let's have a look at these recessions through history now.

So in 1973 to 1975, there was a significant recession.

So too in the early 1980s.

Likewise in the early 1990s, there was also a downturn in the economy.

Then in around 2009 to 2010, there was the Great Recession, a clearly significant drop in GDP growth.

And finally, most recently there was the COVID-19 recession, which again was much more global in scale.

I suppose when we look at this graph, we can sort of see that recessions and upturns in the economy seem to be part and parcel of a global economy.

Time now for another learning check and it says, true or false? When countries have economic booms, the demand for oil increases and so does the price of oil.

So what you need to do right now then is pause the video here whilst you consider and then select your answer.

And the correct answer is true.

Now once again I'd like you to pause the video whilst you consider as to why this statement then is true.

And the reason it's true is that when countries have economic booms, industries and businesses expand and so does transportation, all of which use more oil.

More houses are built as people have more money, which increases the use of oil for heating.

So really well done if you were able to identify those two correct answers.

When countries have recessions, though, when there's a downturn in the economy, the demand for oil decreases.

There's less economic activity, which means that less oil is actually needed.

Reduced demand means lower oil prices, and lower oil prices means a reduction once again in oil production.

Reduced oil production decreases supply.

And if demand exceeds supply, oil prices will start to rise again.

The recovery after a recession often sees a big increase in oil prices as demand increased faster than supply.

So once again we're seeing just how clever OPEC and OPEC+ countries are at cooperating with each other to ensure that the oil price stays nice and high by controlling the amount of oil that's produced in order to ensure that supply always remains below the demand for oil.

The relationship between recessions, economic downturns and oil prices is a really, really complex subject.

If we look at the graph here in front of you, we've got two different lines.

The purple is showing us the oil price whilst the green then is showing us the health of the economy via GDP growth.

And what we can see then is sometimes an oil price increase is a reason for a recession.

Here we can see an example of that where the GDP growth suddenly decreases, but at the same time, oil price has increased drastically.

So OPEC's 1973 block on supply to the USA caused an oil price spike.

Increased prices were then a reason for the 1973 to 1975 recession.

So time now for another learning check that says, which of the following recessions followed OPEC's decision to cut supply to the USA due to the Yom Kippur War? What you need to do then is pause the video here whilst you consider and then select your answer.

And the correct answer was A, 1973 to 1975 recession.

Really, really well done if you were able to select A as the correct answer.

However, not all recessions are actually caused by oil price increase as we saw in 1973 to 1975.

The Great Recession was caused actually by a financial crisis in the USA's housing market that spread to other parts of the world.

There had been a really strong economic boom in the years up to the crisis, which began in the USA in 2007.

Now, as a result of the boom, oil prices reached an all-time high of $147 per barrel in July of 2008.

But as the recession hit, demand for oil dropped, and by December 2008, the price for oil was just $40 per barrel.

Time for another learning check and it says the Great Recession meant oil prices fell to $40 per barrel.

What do you think OPEC did in response? Now you've got three options on the screen in front of you.

What you need to do then is pause the video here whilst you consider and then select your answer.

And the correct answer was B, they cut production to reduce supply to ensure, once again, that demand was always higher than supply, to try and ensure that the oil price was kept nice and high.

So really, really well done if you too were able to select B as the correct answer.

So how about undersupply? Well, oil-producing countries always aim to keep supply around 10% below demand.

Too little supply, or undersupply, could produce a recession.

Now we've already looked at the 1973 to 1975 recession, haven't we? And we're gonna look at this example in a little bit more detail.

So Richard Nixon was the US president from 1969 to 1974.

Now because of OPEC's decision in 1973, the USA faced an undersupply of oil.

Oil prices jumped from $3 to $12 a barrel.

Industries, though, couldn't actually afford the energy they needed to make things and people lost their jobs as a result.

It was a really difficult time to be president during these years.

Now perhaps as a result of that crisis between 1973 and 1975, from the 1990s, the USA used fracking to greatly increase their oil production.

And between 2008 and 2015, US oil production doubled.

What did this mean? Well, there wasn't enough demand to match this increase in supply, and as a result, oversupply occurred.

Oil prices fell dramatically in the period 2014 to 2016 since there was more supply than there was demand.

OPEC members did eventually cut production to stop prices falling even further, below $10 a barrel.

But fracking meant OPEC was now a lot less influential since the USA was much more self-reliant in terms of its energy production.

Time once again for another learning check, and it says, what was the technology that enabled the USA to greatly increase its oil production from the 1990s? So what you need to do right now then is pause the video here whilst you consider those four options and select what you think is the correct answer.

And the correct answer was C, fracking.

We're on now to our one and only practise task for our final learning cycle, and it says to explain one way in which economic factors can affect the supply and price of oil.

You may find this graph useful to refer to in your answer.

So please then pause the video here whilst to attempt this practise task.

Best of luck.

In terms of feedback then, your answer may have included the following.

"Recessions can affect the supply and the price of oil.

When countries have a recession, the demand for oil decreases.

This is because economic activity reduces.

For example, during the COVID-19 recession, economic growth, which is measured by GDP growth, fell to -3%.

Demand for oil fell because lockdowns stopped industrial production and there was much less transportation.

Demand is lower than supply, and so oil prices fell.

As prices fall, oil producers cut back on production.

And when a recession ends, the price of oil usually goes up rapidly as demand increases before production increases, and so there is an undersupply of oil." Another answer, though, could have been, "Oversupply is an economic factor that can affect the supply and price of oil.

Oil producers like OPEC often work together to make sure that oil supply is around 10% lower than demand for oil, which keeps oil prices high.

The USA disrupted this by developing fracking technology.

Fracking meant the USA doubled its oil production between 2008 and 2015.

All this extra oil caused oversupply and oil prices fell dramatically between 2014 and 2016.

This was good for economic activity because oil prices were cheap, as shown by global GDP growth of around 3% in this period.

OPEC members eventually cut their supply to stop the price of oil falling below 10 US dollars per barrel." So really well done if you were able to include anything like that in your own answer.

It's time for our learning summary and what do you need to know from today's lesson.

Well, oil prices and oil production are affected by both international relations and economic factors.

As demand for oil increases, the price of oil rises and oil production may increase.

As demand for oil decreases, the price of oil falls and oil production may fall.

OPEC is an organisation of oil-producing countries who sometimes reduce supply in order to keep oil prices high.

So really, really well done during today's lesson, it was a pleasure teaching you and I will see you again on the next lesson, goodbye.