Chapter 2 .Effects of Supply and Demand

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

Summary:

The article I read about is an economic report from " Trading Today". In the article, it states that the demand for oil will continue to increase despite the high prices of oil. This is because that major economic powers such as China and India are industrializing at an incredible rate. The economic growth of these two countries impacted oil demands greatly. However, as the demand for oil continue to rise, the supply has reached a point where it can no longer keep up with the demand. In many countries, their have been reports that the production of oil will decrease as the years progress. 2008 reports confirmed that the Cantarell fields in Mexico will only be able to produce 1 million barrel a day which is a steep decline for it was able to produce a lot more years before. Moreover, Canada has oil fields that contains 1.6 trillion barrels of oil. However, the extraction process is too expensive. Hence the article suggest we must turn our attention to using an alterantive to substitute for oil.

Connections:

I believe the connection of this article to our text is Supply and Demand. If we look at Demand alone, the factors affecting oil prices are the price of substitute, demographic of population and income. Electrical energy is a substitute for oil. However, because the battery's life span is short and expensive, it is hard to increase the demand for the substitute. Also, people find it more convenient to use oil for their cars. As for demographic of population, the worlds population continues to increase. China and India have population in the billions. Hence the demand for oil will only increase because with more people, there will be a greater consumption of the resource. Lastly, China and India are strong economic powers.They have strong income which allows them to spend on resources causing an increase in demand. When we look at Supply alone, factors affecting it are technology and production cost. Becuase technology has not reach a standard where it may meet the demand of the production of oil, supply decreases as time progresses. Also, because it is too costly to extract oil deep in the oil fields, production cost cause supply to decrease.

Reflection

I agree that oil prices have been increasing for the passed few months. However as of right now, the demand for oil has decreased. As the world economy crumbles, the demand for resources such as oil also decrease because people have less income to spend. China and India are not affected as much because they are an industrial base country. Hence, their focus is primarily base on the exchange of goods not finance and stocks. However, countries like America and parts of Europe focuses on service base that includes the stock market. Hence, when the stock market recesses, there economy is hurt. As of right now, oil prices are moderate; about a dollar a litre. I predict the value of oil will continue to decrease becase people are buying less oil and suppliers continue to produce the same amount per day. In order to prevent oil price from decreasing too much, they should reduce the production to balance out the current demand.