Frenzy in the markets as oil heads for $100 a barrel

Essay by yukahamada22 January 2008

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The article is about the record high prices of oil and the reasons behind the price mechanism on the world market from oil. Two main reasons are pointed out in the article, namely increased demand for oil and reduction in the supply.

Demand is the total amount of goods and services that consumers want and are willing to buy at any price over a period of time. There are several factors that can influence demand: price, availability and price of substitutes, expectations of consumers of future price, etc. In this article it is made clear that consumers are driven to buy more oil at the lower prices- “coming in to buy into dips”. Their expectations are that the price of oil will rise even further and they want to have enough stock e.g. factories, dealers before price rises. The expectation of dealers on their US market that the weekly figures for the oil reserve in the US “ on Wednesday would show a sharp drop” is that D curve shifts to the right which increases the price of oil on the US market.

Graph……On this graph we can see the initially price was at level …… and quantity demanded was ….. The consumers’ expectations of higher prices shifted the D curve to the right and this increased the price to the level of ….., and increased quantity demanded to …..

Another factor that influences the price of oil on the US market is the “sense that supplies are tight in a country which consumes a quarter of the world’s oil”. Supply is ……This sense of future reduced supply comes from the Us Energy Information Administration revising “ its projection for US crude stocks” at lower levels, while projecting a demand for oil for the fourth quarter that will increase with...