Supply and Demand of Oil
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- Date Submitted: 08/27/2010 02:03 PM
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Supply and Demand of Oil
The United States uses roughly a quarter of the world’s oil, no matter the price the United States will still need to import an immense amount of oil. Oil is a factor of production and without many substitutes oil has become a necessity in Americans everyday life.
Many factors cause a variety of shifts in supply and demand for the world commodity of crude oil. According to (Goose, 2007, para. 8), “The market for oil is unusual; because – in the short-term – both demand and supplies are highly inelastic.” What this means is, people need this product. Because fuel is made from oil any fluctuations in the price of oil will have little effect on the demand. If the price of oil were to increase the demand may fall slightly, which is why this particular commodity is inelastic.
One event that can happen to cause a shift in supply and demand is large-scale natural disasters. Hurricane Katrina was the largest hurricane that ever passed through the Gulf of Mexico in which thousands of off shore oil platforms lay. After Katrina made landfall (Robin-McCaskill, 2006, para. 4) states, “The production of oil in the Gulf of Mexico fell by 1.4 million barrels a day. This accounted for 95% of the daily production of oil.” If 95% of oil production declines in the Gulf of Mexico the direct effect will be a sharp increase in the price. Another cause for a shift in supply and demand is developing industrialized nations. As countries, such as China develop a middle-class more people can afford vehicles; thus, shifting the demand, and supply of oil.
The change in price of gas can directly impact its demand. Consumers may look for other options for transportation that require much lower use of oil. For example: taking a bus ride, carpooling, riding motorcycles or driving more fuel-efficient vehicles. These changes may lead to a major change in the demand curve.
Equilibrium occurs when quantity supplied is equal to quantity demanded- An exact point;...
The United States uses roughly a quarter of the world’s oil, no matter the price the United States will still need to import an immense amount of oil. Oil is a factor of production and without many substitutes oil has become a necessity in Americans everyday life.
Many factors cause a variety of shifts in supply and demand for the world commodity of crude oil. According to (Goose, 2007, para. 8), “The market for oil is unusual; because – in the short-term – both demand and supplies are highly inelastic.” What this means is, people need this product. Because fuel is made from oil any fluctuations in the price of oil will have little effect on the demand. If the price of oil were to increase the demand may fall slightly, which is why this particular commodity is inelastic.
One event that can happen to cause a shift in supply and demand is large-scale natural disasters. Hurricane Katrina was the largest hurricane that ever passed through the Gulf of Mexico in which thousands of off shore oil platforms lay. After Katrina made landfall (Robin-McCaskill, 2006, para. 4) states, “The production of oil in the Gulf of Mexico fell by 1.4 million barrels a day. This accounted for 95% of the daily production of oil.” If 95% of oil production declines in the Gulf of Mexico the direct effect will be a sharp increase in the price. Another cause for a shift in supply and demand is developing industrialized nations. As countries, such as China develop a middle-class more people can afford vehicles; thus, shifting the demand, and supply of oil.
The change in price of gas can directly impact its demand. Consumers may look for other options for transportation that require much lower use of oil. For example: taking a bus ride, carpooling, riding motorcycles or driving more fuel-efficient vehicles. These changes may lead to a major change in the demand curve.
Equilibrium occurs when quantity supplied is equal to quantity demanded- An exact point;...