The Supply And Demand Of Crude Oil In The International Market - 550 Words

The Supply And Demand Of Crude Oil In The International Market (Essay Sample) Content: Name Instructor Course Date Supply and Demand The supply of crude oil in the international market was disrupted from August 2018. Subsequently, many countries had to drawdown on their inventory to meet the increasing demand of the commodity. As a result, the prices of oil products escalated. The United States sanctions on Iran was a primary driver of the disruption, which led to a decline in oil inventories despite the increasing global demand. The prices of oil have been increasing consistently for the last few month because of the rising demand and major producers registering a decline in their production. However, the price increase peaked after President Donald Trump introduced more sanctions to Iran, a major oil producer in the international market. Furthermore, on the onset of heightened debate about the role of oil in escalating global warming effects, many producers were required to enforce production quotas resulting in reduced supply in the market. The law of supply and demand is a fundamental theory in economics and highlights the relationship between price and quantity. The theory posits that as supply increases the prices of a commodity declines. This is a principle that many markets intuitively adopt because buyers and sellers are ware that when goods and services are supplied in plenty, there is intensified competition and subsequently the vendors reduce their prices to be competitive (Azevedo and Leshno 1242). Many markets strive to balance supply and demand in order to achieve economic equilibrium between quantity and price. In this regard, the disruption of oil supply from August has resulted in many countries registering an increase in the prices of the commodity. Furthermore, there has been a sharp increase in the demand for the commodity primarily because many economies still depend on oil for their production purposes. Even so, there is a need to understand that the supply and demand theory is not always applicable. Focusing on the supply side of a commodity in the market reveals various factors affecting the price offered for a commodity in the market. For instance, an organization will put into consideration the production cost and in order to remain profitable, it has to set a particular price per unity of the product or service (Azevedo and Leshno 1243). The cost of producing oil has increased concurrently with the increase of price of the resources used in its production. Factors such as cost of labor are essential in the determination of the prices that oil will be provided regardless of how high or low the demand of the product is in the market. On the other hand, some products will continue to be used regardless of the price they are offer...