Oil Price Free Fall - Assignment Example

This "supply schedule" is usually represented by the relationship between the market price and the number of goods produced. On the other side, "demand is defined as the willingness and ability of a consumer to purchase a given product in a given frame of time" (Clasquin 24). This schedule represents the number of goods that consumers are willing to purchase at different prices as long as everything else remains the same. While there are numberless different markets that vary from country to country, there are a few producers that find a demand throughout the world.

One of these is the demand for oil, with almost all machines depending on the energy it provides. The production and consumption of oil make for a perfect example of how supply and demand works. One of the largest and most well-known oil producers is The Organization of Petroleum Exporting Countries (OPEC). This organization ties together the biggest oil-producing countries in the world including Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

"OPEC's influence on the market has been widely criticized. Several members of OPEC alarmed the world and triggered high inflation across both the developing and developed world when they used oil embargoes in the 1973s" (Clasquin 24). OPEC has weathered the ups and downs of supply and demand like no other producer has because the demand for oil in today's fluctuating market is constantly changing. With the worldwide economic crisis currently taking over many parts of the world, the demand for oil has been significantly reduced.

"For years, the world's oil surplus was negligible. This year, OPEC's spare capacity is expected to surge to around four million barrels a day, according to the U.S. Energy Department. In 2009, global oil demand will fall by 800,000 barrels a day -- the sharpest retreat since the recession of the early 1980s, the Energy Department predicts" (King A.6). This sharp decline in demand can be directly linked to the pocketbooks of everyday citizens. A massive amount of the demand OPEC sees comes from everyday citizens needing oil to power their cars.

Many of these citizens are losing jobs and feeling the crunch due to economic stress. They have less spending money and are sticking only to necessities. In this case, less spending money means less demand. For example, citizens have less money to spend on leisure activities which almost always require some kind of transportation to and from. It seems that people are driving only to and from work, sticking to their homes and surrounding neighborhoods in their time off. People can't afford to take vacations, depleting the demand of oil needed to operate airplanes, and an allover tightening of pocketbooks is restricting the amount of work needed to be done by the machinery using oil as a power fuel.

Therefore, with all of these factors facing OPEC, they have "announced that the group's largest supply cut, --2.2 million barrels a day - after pledging to cut two million barrels a day in the autumn, when the slowdown began to take hold" (King A.6). Global economic stress has stalled OPEC actions along with signs of weakening energy demand. At the end of 2008 reports of crude oil stocks rising in cost and falling retail sales in the U.S. were driving oil prices down.