Supply_and_Demand_and_Price_Elasticity

Supply and Demand and Price Elasticity With numerous commodities used daily, Crude oil is a hard commodity well-known in the worldwide economy. Many aspects contribute to the shifts in the supply and demand of crude oil. Along with those factors, the price per quantity demanded is found to be in accordance with the product market equilibrium. Many researches are in progress to identify alternatives to reduce the dependency of crude oil products, but crude oil remains to staple in the marketing systems. Crude oil, like all commodities, is subject to shifts in supply and demand from time to time and many factors contribute to this shift. Crude oil prices are determined by worldwide supply and demand. Demand can vary worldwide with the economy and with weather. Supply can be influenced by the Organization of Petroleum Exporting Countries (OPEC) and other factors (U.S. Energy Information Administration, 2008). The demand for gasoline will be higher in summer months because people drive more during the popular vacation season. Damage to oil supply channels will cause a short-term shift in the supply of oil, such as pipeline ruptures, fires, and hurricanes in the gulf coast that cause damage to oil platforms and refinery stations. Labor strikes and terrorists threats at refineries can also cause a shift in the supply of oil. The rise of emerging markets is changing the supply and demand dynamics. For example, as China and India industrialize, and their emergent middle classes buy cars, then the demand for gasoline rises (The Oil Drum, 2007). The global recession is contributing to a less demand for gasoline because people who cannot afford to pay the high price of gasoline are finding alternate means of transportation. These consumers will take the city bus, car pool, or ride bicycles to and from work. Some communities are promoting these alterative transportation modes by installing bicycle lanes on their city streets and car pool stations. The automobile industry has taken advantage of the need to produce fuel efficient cars; reducing the demand for gasoline. The market equilibrium of crude oil is a situation when the quantity of crude oil demanded is equal to the quantity of crude oil supplied (Hubbard & O'Brien, 2010). When the demand increases the price will increase as well. When the demand decreases the price will decrease. The market equilibrium is always influenced by the demanded price. The more the price goes up, the more the demand goes down. Even though firms are still charging the prices that they have set, the amount being purchased by consumers has fallen. The firms do take notice in this but with crude it is not as drastic as it could be in other markets. This commodity is a necessity in all countries and is a critical component of every developed nation. Because crude oil is such a key element in economies as a whole, generally the better off people are in other markets contributes to a higher demand for crude – allowing higher prices to be set (Martenson, 2010). Commodities are bulk goods and raw materials, such as grains, metals, livestock, oil, cotton, coffee, sugar, and cocoa, which are used to produce consumer products. The necessary product refers to the output of products and services necessary to maintain a population of producers and their dependents at the prevailing standard of life. In the study of crude oil, the crude oil would be the commodity whereas gasoline, the most popular product of crude oil, would be the necessary product. Numerous products are derivatives of crude oil. Some of the main products made from crude oil are: diesel fuel, fuel oils, gasoline, jet fuel, kerosene, and liquid petroleum gas. Other products that have a crude oil base are: 1.) Alkenes (olefins), which can be manufactured into plastics or other compounds. 2.) Lubricants, which produce light machine oils, motor oils, and greases (adding viscosity stabilizers as required). 3.) Wax, which is used in packaging frozen foods. 4.) Sulfur or Sulfuric acid, which is a useful industrial material. Sulfuric acid is usually prepared as the acid precursor oleum; a byproduct of sulfur removal from fuels. 5.) Bulk tar. 6.) Asphalt. 7.) Petroleum coke, which is used in specialty carbon products or as a solid fuel. 8.) Paraffin wax. 9.) Aromatic petrochemicals to be used as precursors in other chemical production. Fuels, such as gasoline and diesel being the most popular crude oil products and those in highest demand are the topic of many debates these days. Many are concerned over the rising demand and price of these products and an even bigger concern that one day this fossil fuel may run out; therefore, the search is on for a suitable substitute. Probably the most suitable is that of biofuels. Some countries have already embraced the idea of and are making huge progress with biofuels. “In Brazil, which can lay claim to being the true originator of biofuels with its 30-year national program to develop substitutes for crude oil products, almost 50% of the vehicle fleet now operates on pure ethanol. Ethanol produced from the fermentation of sugar cane is also used in gasohol, gasoline containing 24% ethanol” (Eisberg, July). These biofuels along with electric cars and hydrogen driven motors are among some of the ongoing research in the hope for a reduction in the dependency of crude oil products. Marketing Systems consist of trading goods or services in the economy with governmental regulations. In addition, Marketing Systems determines the type, how many, and whom will receive the goods or services (Hubbard & O'Brien, 2010). The economy depends on Marketing Systems to keep trading consistent and profitable for the buyers and sellers. The Oil Market starts with crude oil and its feature of petroleum use, processing, distribution, and pricing. Crude Oil proceeds in the following categories of supply sources through processing and distribution: Crude Oil Stock Change, Exports, Productions, Supply, Imports, Blender Net Inputs, Adjustments, Processing Gain, Finished Petroleum Products Adjustments, Refined Products Imports, Electric Power, Motor Gasoline, Petroleum Consumption, Transportation, Residual Fuel Oil, Distillate Jet Fuel, Liquefied Petroleum Gases, Industrial, and Commercial, Residential. Crude Oil is an important commodity that most people depend on daily. The Oil Market is a long process that requires a large number of people at all levels of expertise to keep the system operating in a professional manner. Conclusion The causes for shift in supply and demand for crude oil were identified along with an explanation of the relationship and influence of price per quantity demanded has on the product market equilibrium. A descriptive comparison was made between crude oil and gasoline along with identifying the available substitutes for crude oil. Finally the Oil Market was defined as a market system. References Eisberg, N. (July 18, 2005). Fuel with a cleaner future. Chemistry and Industry, 14(3), 20 - 26. Hubbard, R. G., & O'Brien, A. P. (2010). Economics (3rd ed.). Upper Saddle River, NJ: Prentice Hall. Martenson, C. (2010). The Crash Course. Retrieved from http://www.chrismartenson.com/crashcourse/chapter-17a-peak-oil The Oil Drum. (2007). The economics of oil, part 1: supply and demand curves. Retrieved from http://www.theoildrum.com/node/2899 U.S. Energy Information Administration. (2008). Residential heating oil prices: what consumers should know. Retrieved from http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/heating_brochure/heatbro.htm