The article being discussed is titled ‘What Could Drive the Price of Oil’ and was published in the Wall Street Journal on December 29, 2015. The article discussed the driving habits of Americans and how the increase in demand of gasoline could increase the prices of oil due to price elasticity effect.
In the last year and a half, oil prices have declined by almost 60% and this has meant that the fuel cost has come down for most households. Although price elasticity of gasoline is historically considered to be moderately low, i.e. the demand for gasoline does not change too drastically due to change in prices, the demand has gone up significantly in the last year or so (Jakab, 2015).
The article mentions that the rolling twelve month change in vehicle miles driven increased by more than 3% in October 2015 while it was less than 1% in 2014 and in negative territory from 2008 to 2010 and for most part of 2012 (Jakab, 2015).
This high percentage change in number of miles driven has been seen for the first time since 2001 and explains the reason for high demand of gasoline due to declining oil prices.
The article then goes on to mention that if the demand for gasoline continues to increase strongly and the oil supply does not get reduced, it will cause oil prices to move up the equilibrium and the prices will rise (Jakab, 2015).
The article beautifully mixes the concepts of price elasticity and law of demand and supply. It demonstrates by using historical data as a metric that price elasticity of a product can change over time due to changing environment and consumer preferences and also the effect price elasticity can have in shifting the demand and supply equilibrium.
Works Cited
Jakab, Spencer. What Could Drive the Price of Oil. The Wall Street Journal. Web. 29 Dec. 2015. <http://www.wsj.com/articles/what-could-drive-the-price-of-oil-1451412447>.
