One of the current topics we discussed in this course was supply and demand fundamentals. This topic perfectly fits the current economic issues in the United States and the whole world on the supply and demand of oil. Many countries worldwide are trying to find their footing economically after the menace that the covid19 pandemic has caused. The oil industry was one of the most struck sectors by the effects of the pandemic despite oil being a commodity that has a high demand across the globe. Supply and demand is the relationship between the availability of a commodity that producers of the item intend to sell at a given price and the quantity that the buyers intend to purchase at a given price (Li et al., 2018). This paper will review and summarize and review an article that integrates the application of demand and supply.
I have decided to review and summarize an online article that points out the biggest threats to oil supply and demand from an expert’s view. In the article “Rise of remote working is the biggest threat to oil demand, ” experts have pointed out that the pandemic has greatly destabilized the oil industry (Stevens, 2020). When the first Covid19 case was reported within the boundaries of the United States, the government put in many measures to curb the spread of the virus. One of the containment measures that were put in place by the government was the social distancing and lockdowns in most parts of the country. With these measures in place, organizations were compelled to devise methods where workers had to continue working despite not going to offices or their workplaces. Working from home became a new norm for most people. Due to its advantages and effectiveness, many companies opted to continue with remote working even after the dangers of the pandemic were mitigated.
From the article, analysts speculated that working from home and remote working posed the biggest threats to oil demand. The United States is the biggest consumer of oil produced globally (Sönnichsen, 2021). The United States is estimated to consume 45% of gasoline for every barrel of crude oil refined (Stevens, 2020). With the new norm of working from home or remotely, the article suggests that a considerable demand for oil is lost because of the reduced commuting and travel activities. Of the 45% of gasoline demand in the United States, nearly 30% of the gasoline is used by workers commuting from home to work. Likewise, other parts of the globe are experiencing the same trend of remote working, therefore reducing gasoline demand in the global market.
The working from home policy that saw a massive rise during the pandemic has been tested and proven to be an effective measure and has many advantages. Even as Covid19 restrictions continue being lifted, some companies have already made a permanent implementation of working from home. The article points out social network companies Twitter and Shopify as some companies that have implemented this measure. Analysts have predicted that more companies will follow suit, which will be a big blow to the oil industry as oil demand will not get back to where it was before the pandemic. Analysts believe the continued working from home policy will lead to a loss of 1 – 1.5 million barrels per day (BPD) in the United States alone. Additionally, organizations shifting to holding meetings virtually through technologies such as Zoom and Skype will further ground air travel, affecting oil demand globally.
However, the article suggests that all is not lost for the oil industry, and the demand will begin to rise at some point. Due to the low oil demand, the supply of oil has skyrocketed; oil producers have dropped the price of fuel. The reduced prices would be vital in altering some human behaviors. People would opt to commute using public transport and gasoline cars, which could largely slow the production and purchase of electric vehicles (Stevens, 2020). This will be a win for the oil industry because they will effectively compete with electric cars, which have become affordable in many parts of the world, more so in the US. A drop in fuel price will prevent people from buying these in droves, and the oil industry will be in a position to get its footing again. However, analysts in the article do not credit fully guarantee that the price reduction will significantly impact reviving the oil industry because of the unpredictable human behavior.
From the review above, it is evident that the demand and supply of oil were significantly affected by the Covid19 pandemic. As discussed in the article, the covid19 pandemic has facilitated new human behavior. Reduced movements have been one of the main contributors to the reduced demand for oil around the globe. This article has perfectly blended with our readings in class on demand and supply. The article has effectively given a real-life scenario as our textbook read that when the demand for a commodity is low, suppliers tend to lower their prices to attract more buyers. Oil producers will steadily raise the price of their commodity until it equals the demand to form a new equilibrium.
References
Li, Q., Niu, B., Chu, L.-K., Ni, J., & Wang, J. (2018). Buy now and price later: Supply contracts with time-consistent mean–variance financial hedging. European Journal of Operational Research, 268(2), 582–595. Web.
Sönnichsen, N. (2021). Countries with the highest oil consumption 2019. Statista. Web.
Stevens, P. (2020). Rise of remote working is “biggest threat to oil demand,” says analyst. CNBC. Web.