Demand and Supply of Oil Case Study Example | Topics and Well Written Essays - 500 words

Demand and Supply of Oil - Case Study Example As with any commodity, pricing is determined by demand-supply dynamics, with the market price being set where demand levels equal supply levels (Rowling, 2014). As basic economics would have it, the price would go up if there is an excess supply of the commodity. Same is the case of oil in international markets. The United States, once the highest importer of oil, is now sitting on the largest oil reserves in the world to such a great extent that it has become an oil exporter itself. With so much excess supply and lack of demand, oil prices were bound to face an upward trajectory. Â  What is rather more interesting is that OPEC countries supply around 40% of the world’s oil output. Rather than curbing output in a bid to push up declining prices, Saudi Arabia, the largest contributor of oil within the OPEC, has pleaded to maintain its output levels at the same levels instead of decreasing them in a bid to capture market share. According to statistics, if production continues at the same levels from OPEC and other oil producing countries, then this would translate into a major stock-pile of oil in the first half of the calendar year 2015 to 2 million barrels of oil per day (Rowling, 2014). Again if one understands basic economics, this could mean a further slash in oil prices in the upcoming year. Â  According to my own opinion, there needs to be a proper interaction between real demand and real supply so that an efficient price of oil could be determined. At the current levels where oil prices are going down to new lows in recent times, there is a possibility of consumers over consuming the commodity when they don’t even need to. What needs to be understood here is that oil is a depleting commodity and it has finite reserves. One day these reserves would run out and we would be left with no alternative.