Chapter 2: Supply and Demand

Article Link:

http://www.tradingtoday.com/26-oil-supply-demand

Summary:

The article states that the demand of crude oil will continue to exceed even though with its high prices. This is occurring because countries with major economic powers, like China and India are using the world’s supply of oil at an incredible rate. According to supply and demand, if the quantity demand for oil is too great, then suppliers would not be able to keep up. As a result, supply will gradually decrease because suppliers cannot produce enough to meet the demand. Because oil is becoming scarce, in many countries the oil production will reduce as the year goes on. In the 2008 report, reports say that the Cantarell fields in Mexico will only generate 1 million barrel a day. In Canada, we have fields that hold 1.7 trillion barrels of oil. But, the process of extraction is far too expensive for producers to continue digging oil up. To summarize, the article is trying to persuade us to turn our heads to alternative sources for oil.

Connection:

I think the main connection between this article and Chapter 2 is the theory of Supply and Demand. In class, I learned that the factors that affect demand are price of substitute, population and income. For instances, electricity is a substitute for oil, however, the price for it is high, as well, the life span of it isn’t as great. The population in China and India is in the billions and that is why the consumption rates in that part of the world is so exceeding. In addition to income, China is a country with strong economic power; hence, they’re capable of spending more money and resources in industrializing, which means that their demand for fuel is overpowering the other countries of the world.

Reflection:

It’s evident in the economy today that the oil prices have increase compared to previous years. However, the demand for crude oil right now has decreased because of the weak economy. Couple months ago, oil was $1.15/litre, but now; it dropped to $0.95/ litre. I say the oil prices will stay under $1.00/litre because drivers are buying less oil. Moreover, I think the production cost for extracting oil is too much, and producers should reduce the cost too balance out all the expenses. Maybe then, affording oil wouldn’t be such a hassle.