Comprehension For SBI PO Set

Comprehension For SBI PO Set – 45

Goldman Sachs predicted that crude oil price would hit $ 200 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 $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 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 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 $60 a barrel for most of 2005-07 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 in 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.

1. Why are oil-importing countries relieved?

(a) Price of crude reached $147, not $200, as was predicted.
(b) Discovery of oil reserves within their own territories

(d) There is no need for them to invest huge amounts of money in alternative sources of energy.

(e) None of these

2. 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.

(a) Only A

(b) Both A and B

(d) All A, B and C

(e) None of these

3. 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.

(d) Speculation in oil does not have much of an impact on its price.

(e) None of these

4. 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.

(a) Only B

(b) Both A and B

(d) Only C

(e) None of these

5. What has the impact of the drop in oil prices been?

(a) Exploration for natural gas resources has risen.

(b) The dollar has fallen sharply.

(d) Economic depression in oil-importing countries

(e) Drastic fall in demand for crude oil

6. What led to alternative energy sources being considered economically feasible?

(a) The price of oil rose by 70 per cent while renewable energy sources are cheap.

(b) Exorbitant crude oil prices made alternative energy sources an attractive option.

(d) Evidence that no new sources of oil and gas are available

(e) None of these

7. What does the author want to convey by citing the statistics of 2005-07

(a) The prices of crude were rising gradually so people were not alarmed.

(b) The dollar was a strong currency during that period.

(d) If the price of oil is high for a short time it does not necessarily result in a drop in consumption.

(e) People did not control their demand for fuel then, which created the current economic slowdown.

8. Which of the following factors is not responsible for the current drop in oil prices?

(a) Economic crisis in America, European and Asian nations

(b) Speculation in oil markets

(d) Political stability in oil-exporting countries

(e) All the above are not responsible for the current drop in oil prices

9. Which of the following is NOT TURE 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.

(a) Only A

(b) Only C

(d) Only B

(e) None of these

10. Which of the following is the function of OPEC?

(a) Controlling speculation in oil.

(b) Ensuring profits are equally distributed among all its members

(d) Guaranteeing political instability in oil-exporting countries does not impact output

(e) Determining prices of crude oil

Directions (Q. 11-13): Choose the word which is most similar in meaning to the word printed in bold as used in the passage.

11. INCULCATE

(a) Modify

(b) Construct

(d) Fix

(e) Instil

12. FUELLING

(a) Incentive

(b) Supplying

(d) Irritating

(e) Rescoring

13. DENT

(a) Reduction

(b) Break

(d) Breach

(e) Split

Directions (Q. 14-15): Choose the word which is most opposite in meaning of the word printed in bold as used in the passage.

14. CONVERSELY

(a) Compatibly

(b) Similarly

(d) Aligning

(e) Resembling

15. WEAKEN

(a) Powerful

(b) Nourish

(d) Boost

(e) Energise

Answer Key:

1. (e) 2. (c) 3. (e) 4. (a) 5. (c) 6. (b) 7. (d) 8. (d) 9. (a) 10. (e) 11. (e) 12. (c) 13. (a) 14. (b) 15. (d)

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Comprehension For SBI PO Set – 45