Supply V. Demand: False Perceptions That Impact Crude Oil Pricing
Crude oil, being the leading provider of energy on this planet, is closely monitored, forecasted and heavily traded in the world market. The International Energy Agency (IEA) is one of the noted agencies in charge of accounting for current supply and estimating oil future demand. As Sohbet Karbuz reports in his article, Confessions of a Statistician, the accounting of these fundamentals is complex, requires significant guess work and be subject to fraud and misreported information. This makes the ability to accurately estimate the overall demand difficult to quantify in advance. Karbuz explains that the price of oil can be influenced by inaccurate speculation. Is the demand for energy or oil outpacing the available supply? Errors and flaws in the auditing procedures of the IEA and other agencies with similar responsibilities, has had a significant effect on the perceived supply and demand of oil and thereby impacting the price per barrel on the world market.
Basic economics state that a change in the supply of a product or service can drive the cost up or down. The more of availability of a product or service generally means there is greater competition to sell these products. However, if the demand increases even as the supply increases, the net costs of the product may increase as well. In other words, even as supply increases, the demand outpaces the supply and thereby increasing the cost to the consumer. This is the scenario that oil markets must consider when buying and selling crude oil.
As more nations move into an industrialized economy, the world demand for oil increases. Other factors which can impact demand are colder than normal seasons, war, industrial growth spurts, and the increase in leisure time and summer travel. The total supply of oil is a comprised of the number of barrels oil producing countries can provide plus the available stocks sitting in storage either on land or at sea in transit. There just as many variables which could
Basic economics state that a change in the supply of a product or service can drive the cost up or down. The more of availability of a product or service generally means there is greater competition to sell these products. However, if the demand increases even as the supply increases, the net costs of the product may increase as well. In other words, even as supply increases, the demand outpaces the supply and thereby increasing the cost to the consumer. This is the scenario that oil markets must consider when buying and selling crude oil.
As more nations move into an industrialized economy, the world demand for oil increases. Other factors which can impact demand are colder than normal seasons, war, industrial growth spurts, and the increase in leisure time and summer travel. The total supply of oil is a comprised of the number of barrels oil producing countries can provide plus the available stocks sitting in storage either on land or at sea in transit. There just as many variables which could
References: Karbuz, S. (2006, June 3). Confessions of a Statistician. Retrieved August 26, 2006, from http://www.energybulletin.net/print.php?id=16745