Crude Oil Prices

We all know that history can repeat itself again; and I’m not talking about the sixties when oil price was so cheap; I’m talking about the past two to three years. You can bear with me how nice it was when gas prices or diesel prices were less than a dollar during the nineties or 2000. Who would ever think that they were going to rise drastically to a high price of about $120 a barrel within few years? However it did. Most people blamed it on President Bush for going to war in Iraq. But, let’s not forget that other countries were experiencing the same as we were. If we are to blame it on the war, then what are we going to say about the other countries in the same scenario? This means changes in prices might depend on quantity demanded and quantity supplied curve.

What can cause the quantity demand curve to shift? First and foremost is the direction of prices. If price goes up, people turn to buy less fuel resulting in less quantity demanding. On the other hand, if prices continue to stay low like this for a long time, we might not even have enough oil in the near future. Ask yourself, how are we going to get from one place to another without oil? Therefore, as a consumer, you should sometimes be happy that oil prices are up, so we can cut down a little bit of quantity demanded.

In fact, OPEC and other oil companies have so much power over consumers that they can raise prices too in the future. These companies can come together to an agreement to cut quantity supplied. Since demand for gas is so low right now, they were not able to cut supply to offset the current price of oil due to the recession. However, the only way to raise prices up to its equilibrium is to cut quantity supplied or increase it, whichever way will be the best. In fact Alexander Kwiatkowski said in his article that, “The market is oversupplied.” Because we are oversupplied by oil, we are seeing all these cheap prices. Therefore, OPEC definitely needs to cut quantity supplied and oil price will be at its equilibrium.

Due to all these factors, oil price might go back up when we get out of this recession. Therefore, we shouldn’t be surprise when such thing happens.



Work Cited
Kwiatkowski, Alexander. Bloomberg.com: U.S. Crude Oil Falls After OPEC Delays Decision to Reduce Production. London, Dec. 1, 2008