ChapterTwoBlog

Link: http://www.tradingtoday.com/26-oil-supply-demand

Summary

The article I have picked talks about how demand for oil will continue to increase regardless of the high price. China and India are at the top when it comes to growing economies. This growth and industrialization effects their oil consumption, as their economy grows so does their consumption of oil. Oil supplies can’t last forever, there have been reports that the production of oil will decrease as the year’s progress. Cantarell fields in Mexico will only be able to produce 1 million barrel a day, originally it produce 2.1 million barrel a day. Alternatives have been considered such as bio-diesel, propane, hydrogen, battery power, and ethanol. Slowly people are switching to the alternatives due to the rising price of oil.

Connection

The topic connecting the chapter topic to the article is Supply and Demand. The demand for oil is very high but the supply is starting to deplete, so due to high demands and low supply the price is increasing. The reason why the demand isn’t going down due the high prices is because oil is an inelastic demand. The situation for China is that the increasing price of oil do very little to change its buying patterns. China is willing to pay higher prices because it has such a strong economy, which provides lots of income. In a different situation, like for an average consumer is that if the price of oil continues to increase eventually the consumer will have to find a substitute possibly due to income or expectations of future incomes.

Reflection

I believe that due to the financial crisis we are currently in right now, the prices of oil has started to fall. Times online states that “Oil prices closed below $100 a barrel for the first time in six months.” The price drop in oil might be wonderful news for the consumers but due to our current economy the demand for oil is decreasing because many consumers are expecting lower future incomes and/or is currently earning a low income. So in the end, the price of oil is going down along with the incomes of the consumers.