Article writing help study on: Economics
Gas prices defy bounds of supply & demand, 22 February 2012 – The Spokesman Review
Introduction
The article published in the newspaper “The Spokesman Review”, 22nd February 2012, majorly highlights the fact that the demand for oil & related products in United States has decreased as compared to last year. This has made United States the next best exporter of gasoline. United States is unable to consume the level of gasoline which it manufactures.
Based upon the article it can be seen that, on Tuesday the oil prices raised by $105 per barrel & gasoline was averaged up to $3.57 per gallon. This change in the prices has led to disruptions within the supply of the same (Hall, 2012).
This article discusses the main reasons for the rise in the price levels of the crude oil in New York Mercantile Exchange. The crucial reason for the same is the contracts for future delivery of the oil is being traded has led to high levels of fear due to the confrontation of Iran & Persian Gulf through which 20 percent of the oil passes (Hall, 2012).
Some of the other factors which has lead to an increase in the prices of the oil prices refers to the bankruptcy of Petro plus which is one of the biggest refinery. The second reason refers to the recent fire at the BP refinery situated in Washington. Due to fire, there was a crimp within the supply of the gasoline along the West Coast. This has led to a change in the cost of the gasoline as well, the gas costs approximately $4.04 gallon in California.
With the tension taking place in Iran has ratcheted in the past months, the price of oil as well as gasoline has leaped far beyond the supply & demand variables. It is well stated within the article that, financial speculators are accumulating in the market keep in mind the fear factor of the increased prices. Speculation within the oil prices has been referred to as the DNA of the same. The rise in the oil prices shoots up as there are big financial players who are dominating the oil trading over the stock exchange (Hall, 2012).
Why Crude Oil Prices Increased:
The figure below shows the rising prices of crude oil in the first half of 2011 which has affected the prices of gasoline as well.
(Source: Nerurkar & Pirog, 2012)
In the year start of 2012, development t in certain areas such as Iran has led to high levels of impact over global supply of oil. This has been referred to as one of the key reasons for the change on the prices of gasoline as well as crude oil. Apart from the above reason, sustainable levels of demand growth have also helped in the growth of the emerging economies. The increase in the prices was seen in Libya, North Africa & Middle East (Nerurkar & Pirog, 2012).
High levels of developments in Iran have also contributed a lot in the increase in the levels of oil prices. From 1st July, 2012, European Union has banned the oil imports from 1st July, 2012. Additionally, United States along with European Union have made it more difficult for the Iranian customers to finance as well as ensure the shipments related to crude oil (Nerurkar & Pirog, 2012).
Some of the other economies such as South Korea, Japan, etc are reducing the imports of the Iranian crude. They are practicing the same in order to avoid U.S. sanctions over the foreign banks which are in direct link with the Central Bank of Iran. The largest customers of Iran i.e. China & India have rejected the non United Nations sanctions. It has been seen that, China has reduced the levels of imports in the month January, 2012 which has led to high levels of discount on the prices of crude oil. There has been an increased level of imports in the month of January. This has further led to high levels of negotiations in the levels of pay in Indian currency as compared to dollars.
Developments which lead to a reduction, reshuffle will lead to high levels of supply of oil as well as contribute towards the crude oil prices. All those who are not buying the Iranian crude oil are looking various types of alternative suppliers who are willing to bid upon the cost of the oil. All those are willing to buy the crude oil from Iran will be able to negotiate high levels of discount since there are less number of customers to choose from. If such type of adjustments takes place, pressure upon the global oil prices will be reduced (Nerurkar & Pirog, 2012).
There are high levels of concerns regarding the adequacy of the global supply. There has been a decrease in the levels of production in the recent months by some of the economies such as Yemen, South Sudan, Syria, etc. Oil production from the Republic of South Sudan has shut down with respect to the transit fees with North Sudan. Saudi Arabia states that, it holds high levels of oil production capacity which would make up for the disruptions in the supply. On the other hand, some worry which is associated with the same is that Saudi Arabia does not have much of spare time as it claims (Nerurkar & Pirog, 2012).
With an increase in the global oil supply from the varied sources, in the short run the supply of oil has been quite inelastic with respect to the prices of the same. This means that, the supply is quite slow which would ramp up the oil prices even if it makes a profitable production.
With the struck of time, the global demand has reached high levels of heights. Based upon EIA, global oil consumption has expected to increase at an increased rate. This will help the emerging economies to expand instead of rise in the price of oil. For example, China continues to experience high levels of demand of oil due to an expansion within the economies. On the other hand, Japan has been using high levels of oil while generating power in order to counterbalance the nuclear outages. The oil demand of the European countries has been boosted in February 2012 due to the climatic conditions (Nerurkar & Pirog, 2012).
High levels of development globally would be quite difficult to understand from the United States perspectives as the prices of producing the oil has been increased drastically, the levels of demand has been quite weak and oil is not imported from Iran. Though, the market of crude oil & gasoline has been integrated, therefore any event will have an adverse effect over the prices of oil.
Similar type of an effect can be seen with respect to the customers as they shift away from the Iranian oil. The imports from United States have declined in the recent years & hence US has been referred to as one of the largest oil importers (Nerurkar & Pirog, 2012).
Moreover, the present economic data for United States has shown many positive points which would help in order to recover the economy in terms of recovering the demand for gasoline & other oil products. The concerns related about the supply disruptions which might arise in the near future will lead to an increase in levels of the prices will also have great demand of oil as anticipated (Nerurkar & Pirog, 2012).
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