Forces for supply and demand of oil in USA and in the world

Abstract

The principles apply at the service station level as well. If a retailer prices its gasoline too high, and without regard to competition, the retailer's customers may take their business to another station with lower prices in USA. If a retailer loses enough volume, the retailer may then reduce prices in order to retain its customers. Competition among retail outlets thus affects pricing. You may notice that sometimes there are price differences between two gasoline stations on a busy street corner and between those outlets and the only station on a long stretch of highway. More choices generally mean more competition for business. And although retail outlets may sell gasoline carrying the brand of a major oil company, most dealerships are owned and operated by independent business people who are free to set the prices for their products and services in USA.

Supply And Demand

The marketplace forces of supply and demand determine the price of fuel. If demand grows or if a disruption in supply occurs, there will be upward pressure on prices. By the same token, if demand falls or there is an oversupply of product in the market, there will be downward pressure on prices in USA.

A long term explanatory factor for increasing oil prices could be the decline of the world reserve base. The reserves to production ratio is the measure which indicates the world's ability to maintain current production, based on proved reserves. Over the past decade there has been little change in the reserve to production ratio, suggesting that, at least for now, long term forces are not driving up the price of oil. A wide variety of cyclic and short term factors have converged in such a way that the growth of demand has been unexpectedly high causing upward pressure on oil prices.

Those factors which have been identified as contributing to the high price of oil include the resumption of relatively rapid growth rates of gross domestic product in many countries around the world, a declining value of the U.S. dollar, gasoline prices, the changing structure of the oil industry, OPEC policies, and the persistently low levels of U.S. crude oil and gasoline inventories. Expectations concerning future market conditions are quickly embodied in oil prices formed in futures markets like the New York Mercantile Exchange. The fear of terrorism and war, uncertainty concerning the relationship between the Russian government and the oil company Yukos, and other political factors are quickly reflected in price along with real political unrest like that experienced by oil producing Venezuela and Nigeria. Speculative buying and selling might also affect prices as financial traders adjust their investment portfolios to reflect expected market conditions.

Crude Oil

Like agricultural products, such as wheat and corn, and precious metals, such as silver and gold, crude oil is traded on the world market. Recently, crude oil prices have risen dramatically, driven by rising global demand and political instability in several oil producing ...