Shifts in supply and demand of oil

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SHIFTS IN SUPPLY AND DEMAND OF OIL

Demand is defined as the amount that consumers are willing and ableto purchase at various prices, which varies is inversely proportionalwith the quantity demanded. Supply, on the other hand, is the amountthat producers are willing and able to bring to market at variousprices. Price and quantity supplied are proportional.

The Offshore Post reported that the Organization of PetroleumExporting Countries (OPEC) has foreseen an increase in oil demand toa whopping 1.22 million barrels per day (bpd) from 30,000. Theirmonthly report details an expected global oil demand to grow by 1.15million bpd. Conversely, total oil consumption is expected to hit anew record of 95.41 million bpd by 2017. OPEC notes that global oilsupply increased in July, resulting in an increase in global oiloutput. Crude oil prices of the OPEC Reference Basket saw a 6.9%slump in July.

In the article, I see the demand for refined oil increasing, leadingto a rise in consumption. Therefore, there is an upward shift. Thesupply similarly shifts outwards. This is because the two marketvariables are directly proportional. This is depicted in Graph A. InJuly, the supply of refined oil increased, causing an outward shiftin the supply curve. The crude oil price had to suffer by the 6.9% asshown in the OPEC Reference Basket. To balance the supply-demandequilibrium, the demand shifts outwards as the quantity of therefined oil was needed in the market. This illustrated in the GraphB. In the case of this article, key determinants of demand like thesize of market and expectations about the future shifted upwards dueto the increasing demand for refined oil. Similarly, expectationsabout the future shifted outwards for the expected future supply ofoil.

Reference

Offshore Post, 11 August, 2016, Oil Demand Continues to Grow andHurt Prices, retrieved fromhttp://www.offshorepost.com/oil-demand-hurt-prices/on 11 August 2016

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