Demand & Supply of Oil in Australia-Free-Samples for Students

Question: Discuss about the Demand and Supply Of Oil In Australia. Answer: Globally, oil is described as the engine of the economy. Mainly, this is because oil is a significant raw material for many industries. For this reason, any changes in its supply and demand considerably influence the rest of the economy. As such, alterations in its demand and supply affect the prices of the commodity, which then influences the prices of other goods and service. According to Jessica Resnick-Aults article, the prices of oil dropped. In her article Oil falls despite steep draw in US crude, reveals that the prices of oil in the country have fallen by approximately one percent. Notably, the changes in price of the commodity are as a result of changes in its demand and supply in the global market. It is worth pointing out that the article implores the interests of various groups, among them individuals and firms. Firstly, households may find the article interesting simply because the global prices of oil influences their utility bills with respect to cooking gas and vehicle fuel. In the same way, manufacturing firms may take keen interest in the article because oil is a significant component in many production processes. For this reason, changes in the price of the commodity greatly influence their cost of production, which in turn affect the prices they charge for their goods and services. In addition, refining companies might also find the article interesting as it informs them on the factors that cause significant changes in the prices of oil in the country and the rest of the world. Fundamentally, the issues presented in the article can be presented in terms of economic concepts and theories. In this case, the concept of the law of demand and the law of supply can be applied to explain the changes in the price of oil in the country as well as the rest of the world. In economics, an increase in the demand of a product brings about a rise in its price (Amadeo, 2017). In the same way, a drop in the supply of the commodity leads to an increase in the price of the product. Mainly, this is because a decrease in supply creates pressure on the available amount, thereby pushing its prices upwards. In the article, Resnick-Ault suggests that the gradual slowdown in the demand for oil has significantly influenced the falling of petroleum prices in the country. Predominantly, the reduction in the quantity demanded is as a result of the ending of the peak of the summer driving season. In addition, the demand for crude is expected to slow down following decreases in refinery needs by companies. Furthermore, it has slowed as a result of a decline in the number of summer road trips within the country. All these factors combined, have adversely affected the level of demand for oil and its related products in the country. Consequently, a reduction in the demand for oil has caused a downward pressure on the price of the commodity in the country. Effects of low demand on oil prices Source: (Khan, n.d.). In addition to demand, the supply of the commodity has played a major role in influencing its price level in the country. More specifically, there is a global surplus of oil from OPEC countries and the uses. Fundamentally, it arises from the fact that the global economy is facing a significant growth in the level of output from oil producing countries throughout the world. Primarily, economic theory dictates that when the supply of a good increases, a negative and downward pressure is placed on its price. In the same view, the continued oversupply of oil in the international marketed has placed a negative pressure on the price of the commodity, forcing it to drop. Effects of supply on price Source: (Khan, n.d.). It is worth noting that the reduction in the price of oil in the country has both positive and negative implications for the Australian economy. By and large, low oil prices act a significant economic stimulus that brings about growth and development. More specifically, lower oil prices lead to a reduction in the cost of transport for households and firms. In turn, this ensures lower costs for businesses and ensures profitability. Additionally, lower prices leads to a reduction in the level of inflation in the economy and, thus, ensures price stability. Moreover, it leads to a decrease in the cost of production of manufacturing companies in the country, which then leads to a decline in the prices they charge for their products. Thus, the combined effects of lower prices in the country boost economic growth. Even so, it is imperative to point out that a continued drop in the prices of oil in the country may negatively affect economic growth. As such, it may force oil companies to go out business to cut back on their production or go out of business. Consequently, this forces firms to lay off some workers, leading to an increase in the level of unemployment in the country. thus, eventually, a continued increase in the price of the product will be detrimental for the Australian economy. In this regard, it is recommended that the government should control the demand and supply of the commodity. This way, decreases in the price of oil would be moderate, and hence, act as a stimulus to the Australian economy. All in all, taking all factors into consideration, the demand and supply of oil plays a significant role in influencing the price level in the country. Through Resnick-Aults article, the reader discovers that low demand in the country has led to a fall in the price oil. In addition, a consistent increase in the supply of the commodity has negatively affected its price. For this reason, one notes that the forces of demand and supply are significant in determining the price level of a particular commodity. Reference List Amadeo, K. (2017). Law of Demand: Definition, Explained, Examples. [Online] The Balance. Available at: https://www.thebalance.com/law-of-demand-definition-explained-examples-3305707 [Accessed 18 August 2017]. Johnson, S. Supply, demand, and market equilibrium. [Online] Sophia. Available at: https://www.sophia.org/tutorials/economic-basics-supply-and-demand [Accessed 18 August 2017]. Khan, S. Law of Demand. [Online] Khan Academy. Available at: https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium/demand-curve-tutorial/a/law-of-demand [Accessed 18 August 2017]. Khan, S. Law of supply. [Online] Khan Academy. Available at: https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium/demand-curve-tutorial/a/law-of-supply [Accessed 18 August 2017]. Khan, S. Supply, demand, and market equilibrium. [Online] Khan Academy. Available at: https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium [Accessed 18 August 2017]. Resnick-Ault, J. (2017). Oil falls despite steep draw in US crude. [Online] The Australian. Available at: https://www.theaustralian.com.au/news/latest-news/oil-falls-despite-steep-draw-in-us-crude/news-story/f89a7e35ae51086c13f40e8a03cb31b4 [Accessed 10 August 2017]