The concept of Demand and Supply exists in virtually every commodity in the world. It is the main factor that determines the prices of commodities. In reality, there are many factors at play in the Demand-Supply scenario. This essay will cover some of the demand and supply aspects for Oil.
In the article, one understands that the price of oil has gone up due to an increase in the demand for oil. The reason for this price movement was the sudden spike in demand for crude oil. (Puko) In this case, although there was still a high supply of crude the prices spiked upwards primarily due to the demand exceeding the supply, at least over the near term. However, there are a number of factors at play in the Demand-Supply scenario, of which the political and economic environment play a key role. At the base level, the spike in prices is also a result of a fall in supply as oil producers cut oil production. This drilling and production cut aided by a nascent rise in the demand has lifted up oil prices. There is also a geopolitical reason for the fall in oil prices. Key oil producers such as Nigeria and Iraq have cut down oil production since their oil facilities are under attacks from militants.
Although, this is the scenario at present, the future demand and supply scenarios would be important to the fluctuations in oil prices. One of the key drivers of the demand and supply equation would be the entry of Iran into the supply chain. In such a case, if the demand curve stays as it is and the supply curve shift upwards, the price of oil would fall again. However, if the world sees an unprecedented demand of oil, the price of oil would increase further. This is the precise reason why it is so difficult to predict the trend in oil prices.
In conclusion, one can understand that the Demand-Supply scenarios of oil are dependent on the geopolitical and economic environment globally. These factors then alter the price of oil according to the demand and supply equations for oil.
Works Cited
Puko, Timothy. Oil Hits Three-Month High on Gasoline Demand. The Wall Street Journal. Mar 9, 2016. Web. Mar 18, 2016.
