The article selected for this assignment describes a reduction in the price of oil despite the supply cuts by many producers and strong demand. Two separate trends are mentioned in the story: considerable growth and a subsequent reduction. The first is informed by a decrease in supply along with a slightly increased demand for oil. The second shift occurred due to the market’s expectation of slower growth of major developing markets, which created a reduction in demand.
As such, it is possible to employ two graphs to explain the situation. Overall, each of the trends can be described by the graphs presented in the collection, sometimes along with the implications of the Laws of Supply and Demand.
The article mentions a sharp increase in the oil price benchmark that occurred in early 2019. According to Adomaitis (2019), it grew by 20% since January due to supply reductions from the Organization of the Petroleum Exporting Nations, its allies, Iran, and Venezuela. Adomaitis (2019) also noted that the active export and refining demand led to a significant reduction in U.S. oil barrel stockpiles. However, the tendency was reversed shortly before the writing of the article, with the prices experiencing a drop.
Adomaitis (2019) attributes the shift to the slowed growth of Asia, Europe, and North America, along with the continued trade war between the U.S. and China. The market expected that the tensions would continue to harm economies and lowered their demand for oil.
The initial increase may be attributed to graph D from the collection. Many major oil producers reduced their supply due to a variety of factors, and the supply curve shifted inward. As was mentioned above, the demand for the good remained stable, and therefore, prices began rising as buyers were willing to pay more to obtain the increasingly scarce product. It can also be seen that demanders turned to alternate producers to satisfy their need for oil, as the reduction in the U.S. stockpiles shows. Overall, the rise was mostly created by the lowering of supply by many major oil exporters, which mainly appeared temporary in nature.
The market then proceeded to lower its expectations against the background of slower growth and continued trade tensions between major economic powers. As a result, the demand for oil fell, leading to a decrease in prices that are mentioned in the article’s headline. The situation corresponds to graph B, where the demand curve shifts downward, leading to a lower price equilibrium. The graph also mentions that suppliers would bring lesser quantities of the product to the market. This notion is consistent with the statement by Adomaitis (2019) that U.S. energy firms were reducing the numbers of operating rigs. Notably, they began doing so in advance, possibly predicting the end of the price boom.
The article used for this assignment describes two oil price trends, a considerable increase over several months and a subsequent drop after hitting a peak value. The first can be expressed with graph D, where a lowered supply led to higher prices due to the willingness of demanders to pay more. However, there was no indication of overall demand suffering until the drop that happened several months later. It may be represented with graph B, where decreasing market expectations curbed demand and reduced oil prices. Producers also began lowering the number of operating facilities, which is consistent with the Law of Supply.
References
Adomaitis, N. (2019). Oil eases from 2019 highs, settles down 1.6% at $59.04 per barrel. Reuters. Web.