Oil Market - Essay Example

Only on StudentShare

Extract of sample
Oil Market

Tight balance between supply and demand can lead to high prices that cause both higher expenditures for consumers and higher incomes for producers. In economics, exhaustible resources generally follow the rule that the rate of growth must equal the rate of interest in order to reach industry equilibrium. However, due to the unpredictable character of future oil supply and demand conditions, oil prices do not generally follow this rule. Most of the time, it exhibits backwardation wherein future prices are lower than current ones. Future demand is hard to predict because it is difficult to foresee changes in energy technologies and it takes years for consumers to switch to other resources should prices go off the roof. On the other hand, investment is expensive and risky and it takes a while before production supply turns to high capacity. Oil prices also behave unexpectedly since the market is responsive to speculative pressures, operational constraints, and political conditions.
The Hurricane Katrina, by reducing gasoline supplies (which is chiefly derived from crude oil), became one dramatic factor that caused oil prices to skyrocket in 2005. The storm reduced oil production, transportation and refining capacity--it paralyzed major oil and gasoline pipelines that carried supplies down from the Gulf Mexico and took down offshore oil platforms. ...
Download paper


The oil industry is a fast-depleting one, the prices and current production rates of which is largely determined by the Organization of the Petroleum Exporting Countries (OPEC) and a few other countries which are non-OPEC members. Oil is the largest strategic resource in the global and international market…
Author : stephen06

Related Essays

Chinese Oil and Gas Market
3 pages (753 words) Essay
The Role Of The Federal And Provincial Governments In Compliance With Kyoto Protocol While Increasing Oil Gains In Alberta.
13 pages (3263 words) Essay
Oil Industry Essay
2 pages (502 words) Essay
Oil Prices Essay
5 pages (1255 words) Essay
Oil Crisis
3 pages (753 words) Essay
Impact of Oil Prices on the US Economy
7 pages (1757 words) Essay
Got a tricky question? Receive an answer from students like you! Try us!