Article review focus microeconomics - Essay Example

Sur Supervisor Article Review #2 The article that I chose to review is published in Wall Street Journal on December 5, 2013. The title of this article is “U.S. Oil Prices Fall Sharply as Glut Forms on Gulf Coast ”. The article has been written by Russell Gold and Nicole Friedman. The article highlights that the US gulf coast is flush with crude oil resulting into a sharp drop in oil prices taking a diversion from global prices. Domestic supply of light crude is going to surpass demand that is what Ed Morse, commodities research head at Citigroup wants to emphasize.

Things have changed because oil fields in North Dakota and West Texas have been not only producing surplus oil but its transportation has been easy through a new pipeline to the coastal region of Louisiana and Texas.Source: http://online.wsj.com/news/articles/SB10001424052702303722104579239831640276094 Following the law of demand and supply in economics, oil glut leads to lower prices for oil producers. A representative from the Organization of the Petroleum Exporting Countries (OPEC) says that Saudi Arabia is supplying oil at lesser price to their own refineries in coastal region than what it fetches in Asia.

Surprisingly, Louisiana crude fetches $9.46 per barrel less than the price in England for the comparable quality of crude. With this shift in demand-supply equilibrium, the prices of crude in Texas, North Dakota are heading southwards. Sellers market has suddenly turned into a buyers market. However, experts do not envisage a glut that could result into a significantly lower price as happened in case of increased natural gas production in the US pushing the price of gas at its lowest in last couple of years.

The reason is that many Gulf Coast refineries cannot switch over to Light Sweet crude oil from more viscous crude currently being used without making significant changes in their refinery equipments and processes. In this article, the author is mainly trying to emphasize that now cheap US crude is available to refiners increasing price competitiveness of the US refiners over their global counterparts. It is pertinent to note that between June and October, the US refiners have increased their exports by 22% controlling over 20% international market of jet fuel, diesel and similar products.

It is significant to note that the largest oil refiner of the US namely Valero has stopped importing due to availability of Light Sweet crude oil. The reason is that North Dakota has been producing one million barrels per day from Bakken Shale formation. This is over and above the production of almost 1.3 million barrels in South Texas at the Eagle Ford Shale deposit. In my opinion, the authors have been successful in depicting the current and future energy scenario in the US, especially in relation to crude oil and petroleum products.

They have presented their views with clarity. They have produced price charts of Louisiana Light Crude and Brent Crude of last six months in 2013 to prove their point home; however, a lot would depend upon how the federal government takes position on export restrictions that they imposed a way back in 1973 when OPEC formed a price cartel. Work-CitedCronin, Brenda; House, Jonathan. “U.S. Oil Prices Fall Sharply as Glut Forms on Gulf Coast”. Web. 24 Feb, 2014. http://online.wsj.com/news/articles/SB10001424052702303848104579312263978373456