Summary
Low demand for petroleum products, as noted by a government supply report, has caused the price of oil to fall considerably. Oil reached its all-time high price of $147 per barrel in July, but since then has dropped below $70 per barrel and down 52% of its peak. The horror of a looming economic recession has put the oil market under a great deal of pressure and in a state of turmoil. Analysts worldwide have stated their concerns of how supply is “hitting the market at a time when demand is questionable." Governments around the world have taken drastic measures to boost their stock markets and restore faith in the financial system. However, many investors believe the economy will remain weak even after the markets have stabilized. As a result of this crisis, the Organization of Petroleum Exporting Countries (OPEC) is moving their meeting from November 18th to October 14th in order to quickly produce a solution to the rapidly declining price of oil.
The Operation of a Market: Demand
The dwindling demand for crude oil and gasoline has caused oil markets around the world to suffer greatly. This is largely due to the global economic crisis and its effect on the value of petroleum products. The change in demand can be accounted for by many of the factors illustrated in Chapter Two: The Operation of a Market. As the price of oil climbed up during the summer, the demand for oil gradually fell. The global recession has taken a toll on the general level of income as the demand for oil declines with the increasing number of layoffs. Moreover, expectations of lower future incomes, as unemployment rates rise, lower the demand for petroleum products. With no clear indication that the global stock markets will recover anytime soon, there are expectations of even lower future prices that will further decrease the demand for oil.
Personal Reflection
As a Canadian citizen, I hope dearly that Canada’s economy will be able to rebound from the current economic crisis. However, I am not convinced that increasing demands to raise the price of oil is the way to salvage our falling economy, in spite of the fact that crude oil and gasoline are huge contributors to Canada’s economy. The OPEC intends to increase demand in order to raise the price of oil, yet they claimed nothing could be done when the price of oil reached a staggering high in July. I do not believe raising the price of oil is the solution as Canadians lamented endlessly when it was at an all-time high in the summer. Driving is much more affordable when cheaper gas is available.
Link: http://money.cnn.com/2008/10/16/markets/oil/?postversion=2008101615
