friends, find Quiz on SBI PO Preliminary English Language Practice quiz 11
Directions (1 – 15): Read the following passage carefully and answer the questions given below it. Certain words have been printed in bold to help you locate them while answering some of the questions.
Goldman Sachs predicted that crude oil price would hit 200Dollars and just as it appeared that alternative renewable energy had a chance of becoming an economically viable option, the international price of oil fell by over 70%. After hitting the all-time high of 147Dollars a barrel, a month ago, crude fell to less than 40Dollars a barrel. What explains this sharp decline in the international price of oil ? There has not been any major new discovery of a hitherto unknown source 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 it 198 did. In the short run, the price elasticity of demand for crude oil is very low. Conversely, in the short run, even a relatively big change in 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 at over 60Dollars a barrel for most of 2005-2007 without making any major dent in demand.
The long answer is more complex. The economic slowdown in the US, Europe and Asia along with dollar depreciation and commodity speculation have all had some role in the downward descent in the international price of oil. 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 also increased manifold which has 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 ’80s. 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 oil exporting regions of the world have remained politically unstable fuelling speculation over the price of crude. But there is little evidence that the geopolitical uncertainties in west Asia have improved to weaken the price of oil. Threatened by the downward slide of oil price, OPEC has, in fact, announced its decision to curtail output.
However most oil importers will heave 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.
.What does the phrase “the price elasticity of demand for crude oil is very low” imply?
A. When the price rises the demand for crude oil falls immediately.
B. A small change in demand will result in a sharp change in the price of crude.
C. Within a short span of time the price of crude oil has fluctuated sharply.
Which of the following factors is responsible for rise in speculation in crude oil markets? (A) OPEC has not been able to restrict the oil output and control prices. (B) The supply of oil has been rising to match demand. (C) Existence of large number of oil futures and oil contracts.
Which of the following is NOT TRUE in the context of the passage?
(A) Open was established in 1970 to protect the interests of oil importing countries. (B) When demand for oil exceeds supply there is a sharp rise in price. (C) Today futures trading markets set the oil prices to a large extent.
Which of the following is/are TRUE in the context of the passage? (A) The decline in oil prices has benefited all countries. (B) Renewable energy sources are costlier than non renewable ones. (C) Lack of availability of alternative renewable energy resulted in rise in demand for crude.