This article discussed about the recent things going on in the oil market. The international energy agency predicts that the demands for oil will less than that of the previous month. There are mainly 2 reasons for it. One is the increase in price of oil. As the article mentioned, “Oil prices have doubled over the last year to $126.40 a barrel yesterday”. Such high price leads the demand for oil to decrease. However, this only occurs in developed countries such as America. Because developing countries need much more energy to develop. So the demand for oil is almost perfectly price inelastic. Hence the demand for oil in countries such as China and India will still increase. The government has to provide subsidies for oil to make sure that people can afford.

Usually, the high price will lead demand curve to shift to left and the price will fall till quantity demanded is equal to quantity supply. However, due to the unchanged or even increasing demand for oil due to the developing countries. The demand for oil in the world will only drop by little.
Another reason is increasing number of alternatives for oil. In developed countries, the scientists have been trying to find suitable alternatives for a long time. And there are a number of good alternatives such as bio fuel. Hence the increase in price of oil also leads the increase in demand of other fuels. However, because of the lack in technology, the developing countries do not have good alternatives but oil. That’s why the demand of oil in developing countries will not decrease.
The article also mentioned that “there is no clear single explanation for the high oil price”.

The Organization of Petroleum Exporting Countries (OPEC), which is the biggest supplier of world’s oil decided to lower the supply by 0.3-0.6 barrel a day. It is because they do not want the oil price to fall even though the demand is falling. As the president of the biggest oil- consuming country, George Bush wants Saudi Arabia to increase the amount of oil supplied in order to slow down the high-pace growth of oil price. However, OPEC is not likely to do this as they said that “releasing more crude to the market would affect runaway crude prices.” Therefore OPEC will stick to its current schedule and not produce more crude.

As alternative resource of oil, “Biofuel will contribute about two third of the total growth in non-OPEC fuel production this year. In long term, this will affect the demand for oil to fall if the price of the oil is too high.










by group 3