International Energy Agency - Essay Example

The market is now saturated with the same product or good. As a result, the price begins to fall. As such, this paper seeks to illustrate how these macroeconomic forces are applied to world markets through an analysis of a recent article about world oil demand. Oil is a commodity that drives the economy in every country and for this reason, it is in demand across the whole globe.

According to International Energy Agency (2015), “The price of oil continued to collapse into January as rising supplies collided with weak demand growth and OPEC maintained its commitment to not cut production. Brent crude futures last traded at $48.40/bbl, near a six-year low.” the problem is heightened by weak macroeconomic forces that continue to restrain global oil demand according to the energy agency. The graph below illustrates the trend in oil demand across the globe. It can be observed that the supply of this precious commodity is higher than the actual demand. Given such a scenario, it can also be noted that the price of this commodity begins to fall.

The law of demand and supply applies in every market economy. There are quite a number of macroeconomic forces that come into play as far as the price of a particular commodity is concerned. For instance, if the consumers have enough disposable income, it means that the price of the commodity is likely to decrease. On the other hand, more supply of the commodity than what is actually demanded in the market entails that the product price will also decline. Many countries across the globe are slashing the prices of fuel because of the fact that oil prices are falling on the world market. Given such as situation, it can be observed that countries in different parts of the globe a compelled to respond according to the macroeconomic conditions obtained on the ground.

In the same vein, when the supply of oil declines, the price of the commodity increases.
As discussed above, it can be seen that the price of a certain commodity is mainly determined by two macroeconomic forces namely demand and supply. As illustrated, when the supply of the commodity outstrips the actual demand, it means that the price will decline. In the event that the demand is higher than the supply of the product or commodity, the price begins to increase. Therefore, it can be concluded that macroeconomic forces including demand and supply play a pivotal role in determining the price of a particular commodity. Read More