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The Changing Price of Oil and Its Impact on the American Consumers - Essay Example

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This article “The Changing Price of Oil and Its Impact on the American Consumers” is an eye opener into the world of oil prices, demand and supply and how spending on one commodity can affect demand for other goods and services. It looks at the behavior as a relationship between ends and scarce means…
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The Changing Price of Oil and Its Impact on the American Consumers
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The Changing Price of Oil and Its Impact on the American Consumers

Download file to see previous pages... In the words of Lionel Robbins (1898-1984), Head of the Economics Department at the LSE: "Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses." (Robbins, 2007,3). This scarcity definition proposed by Lionel Robbins in 1923 reflects the fact that we have to make economic choices in daily life. Economic goods may be defined as those that are relatively scarce, have value and command a price. The price of a particular good or commodity as always is determined by the laws of demand and supply. Demand may be defined as the amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price (www.about.com). Supply may be defined as the total amount of a product (good or service) that is available for purchase at a given price (www.investorwords.com). It is the interaction of the forces of demand and supply in a marketplace that determines the price of a product at any given time. Price is the quantity of payment or compensation given by one party to another in return for goods and services. We talk of individual demand when we refer to a particular transaction made by a buyer or seller at a given price. We speak of aggregate demand when we talk of the entire demand of the world buyers for a particular commodity, in this case, oil. This aggregate demand is thus the sum of demand for oil by all the countries interested in buying this commodity from a certain supplier at a given point in time. The biggest supplier of oil in the world market is a consortium or group of producers called OPEC or the Organization of Petroleum Exporting Countries, an intergovernmental group of presently 12 oil producers. The graph below shows the price of Brent Crude oil per barrel for the four weeks beginning 07 November 2011 and ending on 07 December 2011. Price is indicated on the vertical axis and the time period on the horizontal axis of the graph. From the movement of oil prices on the graph, we can see that Brent Crude hit a high of $116 on 08 November 2011, probably as the war in Libya was still raging between Gaddafi loyalists and forces opposing the decadent regime. Ultimately as the liberating forces gained the upper hand, Gadaffi was captured from a sewer in his hometown of Sirte. Still, the battle raged on for a few days more as forces loyal to the former leader took their last stand. The OPEC nations meanwhile had temporarily increased their supply to the world in the light of the fact that access to Libyan oil, which totals 5 percent of the world supply, was unavailable during this period. There is a drop in oil price to $107 per barrel on 17 November 2011 as the world debate on what to do in post-war Libya was finalized and funds were released to the emerging leadership and the commander of the liberating forces was even invited to France to talk with Sarkozy and other leaders. Once it was clear that a transition to democracy was on the cards and there was no danger of further insurgencies or threat of an Islamist radical group taking over, Libya was given its funds, sanctions were lifted and supplies of oil to the world could be resumed. Meanwhile, as Iran and Syria face increasing sanctions, they would like to keep the price of oil as high as possible. ...Download file to see next pagesRead More
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