Economic Article Analysis - Essay Example

Formerly, most of the economic analysts opined that crude oil stock might fall by 600,000 barrels over the last week of August 2009. But eventually it dropped by 200,000 barrels less than the expected level1. In a sharp contrast the gasoline inventories experienced an alarming decline of 3 million barrels. However the recession ridden US economy, which were experiencing a falling fuel demand over the past one-year, breathed a shy of relief in terms of a marginal increase for the same. It is obvious when crude oil stock fell to a less than expected level and gasoline stock fell to a more than expected standard, therefore in reverse terms, crude oil draw would be less than that of gasoline.

This fact has been rightly pointed out by Phil Flynn, analyst for PFGBest Research in Chicago, the Energy Information Administration (EIA). He further observed that a bullish demand for gasoline neutralizes a bearish crude oil demand. We have observed over the last one-year what immense effect a fall in effective demand for a commodity can have on its price level. For instance, in less than 6 months (from July 2008 to December, 2008) crude oil price experienced almost 78 percent drop. Thoughtfully an expected fight back of the economy from the abyss of recession perhaps generated some kind of positive demand boost for fuel in general (although slower than expected)2 and thereafter (December, 2008 onwards) might have made some positive price adjustments.

The relation between recession and dampening price of fuel might be logically illustrated as follows – recession implies declining production, falling economic activities, that is, industrial, tertiary and primary sector related activities. All these activities use fuel as a source of energy and decline in such activities leads to decline in fuel consumption, resulting in less demand and hence fall in price3. However on one