Oil Prices-What can be Done to Reduce its Volatility?

PUTRI, FIKA MUTI ,

2012 | Skripsi | S1 Management

In the late 2010 and early 2011, oil price experience a drastic increase, which bring about the worry from the market participant. In July 2010, the price of oil revolves around US $74.52 and it started to raise exceeding US $111 in the beginning of 2011. This thesis research paper analyzes the causes of the high-level oil price volatility through out the history of oil price until today. The assessment of oil price historical timeline finds that market fundamental, geopolitical condition, and other causes, such as currencyÂ’s value, governmentÂ’s monetary policies of fuel subsidy, and the growth of speculation in oil future market, contribute to the fluctuations of oil price. Based on the analysis of the factors affecting the level of oil price volatility, this thesis paper produces a couple of recommendation on how to reduce the oil price volatility. The first is to reduce the importance of oil by diversify the use of other energy source thus creates a substitute to replace oil. The second is to create a reliable data that is accurate and timely about the oil market condition; demand, supply, inventories, etc. The enhancement of Joint Oil Data Initiative (JODI) also needs to be encouraged in order to produce complete and up to date data information. The third is creating a greater transparency in the financial activities and investment flows in the oil future market. And finally, the last recommendation is to creates a cooperation between all oil-producing organization and oil companies in the world in order to be able to run the oil market based on mutual interest

Kata Kunci : Oil price, volatility