Buisness Economics

Oil Supply, Demand and Price Changes

Supply and demand allows consumers and producers to change the market condition quickly. Supply is influenced by the ability to receive, refine and distribute enough oil to stations nationwide. When there is a change in supply, the price of the Oil must increase. Demand in turn is influenced by the price of goods. If the price of a product is high it is less likely for a consumer to purchase that product.

The Effects of Threats to Oil Prices

The price of oil went up this previous weekend after a series of missiles were test fired by North Korea on July 5. There may not have been a direct threat to oil production, "North Korea should have little bearing on oil prices, given that tensions in the region should not interrupt oil supply,'' said Gerard Burg, a minerals and energy analyst at National Australia Bank Ltd in Melbourne. Natural disasters such as Post-Hurricane Katrina can have a direct threat when the disaster causes destruction of the equipment necessary to manufacture the oil. By having the oil disruption in the Gulf area disrupted as well as the oil in the Iraq market, and with the demand for this oil not decreasing, the customers will ultimately have to pay the difference at the gas pumps. This in turn is affecting the economy in other ways where businesses depend on transportation or profits that would have been produced over the holiday season. It was thought that many Americans are not traveling as much as they normally would, but most Americans have no intention of reducing the amount of Oil they use, even with the increase in gas prices. The demand for Oil rose 1.4% within 4 weeks. The current average price per gallon is $2.937 on July 5, 2006, after a price of $2.222 a gallon only one year earlier. (Gulf Times Newspaper [GTN], 2006)

Influencing Supply

Supply of oil is influenced by how much demand there is for a product such as Oil. Businesses want to make the most profit as possible. If suppliers have their products priced high there will be little demand for them and if prices are too low they will lose money. That is why supply and demand must be in equilibrium so prices stay low and they meet the demand.

Competition and Demand

But how about if the demand is too high and there is not enough supply? ...