According to the article, the change in the oil price and quantity can be explained by the economics of demand and supply (Krauss, Sec.3). On the supply side, the supply determinants such as the increasing number of suppliers are causing the shift in the supply curve. For instance, in the United States, the production of oil has almost doubled in the last six years. In addition, other producers such as Algeria, Nigeria, Saudi, Canada, Iraq, and Russia have increased their production (Krauss, Sec.3). Consequently, this has increased the oil supply in the market, and this can be depicted a shift of the supply curve to the right (McEachern 85). This shift is associated with increased in quantity and decrease in prices. The equilibrium point also moves downward as indicated by the diagram below.
Shift in supply curve
On the demand side, various factors of demand are decreasing the demand for oil and hence causing the demand curve to shift on the left-hand side (McEachern 84). For instance, the article explains that the economies of the developing countries and Europe are becoming weak. In addition, the enhancement of technology has facilitated production of more energy-efficient vehicles (Krauss, Sec.3). Due to this trend, the demand for oil in such countries is declining. This decrease is associated with the decrease in the price of oil and decrease in the quantity demanded.
Shift in demand curve
Therefore, from the demand and supply side, the changes in the price and quantity of oil can be determined, and hence help to explain the future prices of oil. The increased production of oil, use of more energy efficient vehicles, and weak economies are the main factors that explain the decline in the oil prices.
Works Cited
Krauss, Clifford. "Oil Prices: What’s Behind the Drop? Simple Economics." The New York Times [New York] 6 Jan. 2016: n. pag. Web. 9 Jan. 2016. <http://www.nytimes.com/interactive/2016/business/energy-environment/oil-prices.html?_r=0>.
McEachern, William A. Economics: A Contemporary Introduction. 9th ed. Cincinnati: Cengage Learning, 2011. Print.
