World oil supply
Oil, one of the most precious commodities of the mechanized age, is available in limited quantities as it is an irreplaceable resource. Not only does oil run the United States and hundreds of other countries around the world, but it also is a vital element of the global economic system. Without the trade and drilling for oil, economic growth and prosperity would be an overbearing task. Crude oil prices as well as refined oil products are volatile and have risen by over 25% in 2004 alone and the latest rises are causing worries in importing countries about the economic cost of higher energy prices. Major oil exporters are divided between countries such as Saudi Arabia (the largest oil exporting country in the world) and Kuwait, who favor of lifting output in an attempt to ease price, and countries like Venezuela which argues against conciliatory moves toward big consumers (mainly the United States). From an economic vantage point, there are many factors that create price instability for the trading nations of oil.One cause of the rising price is the increasing (rightward shift) of demand in the oil market. Global economic expansion is driving the biggest increase in oil demand in 16 years. Blossoming ec
Short stocks of crude oil inventories affect oil prices because inventories represent the ability of the market to meet demand in the short run. Forecasts turned out to be too low and the suppliers as well as OPEC kept oil stock quotas even tighter than was needed to prevent having to rebuild stock. As fears and tensions continue amid the terror crisis and the war and Iraq demand for oil will continue to be high because of the consumer's fear of the future and the oil producing countries inability to maintain a steady high output of oil. The producers of oil are also to blame for the high oil market prices. Only time will tell if these economic trends continue. As a result of the increased demand, suppliers do not have enough significant reserves of oil to release and trade in the market. The quantity demanded for oil does not meet the quantity supplied and the oil prices rise. The opportunity cost of the oil countries in the Middle East and South America to produce oil is a very slim margin because oil readily available and is one of their only exported goods and therefore these exporting countries have to give up very little of another good to produce oil. Because oil is not a resource that all countries have readily available, oil exporting nations have a comparative and absolute advantage in oil production and therefore have somewhat of a stranglehold on the market for oil and their production is highly specialized. onomic powerhouses like China rapidly expand their economy and create a huge demand boom. Low US gasoline stocks and pressure on US refineries to increase production of new gasoline blends have also helped drive crude oil prices higher. Another factor is Environmental regulations which require a certain grade of gasoline to be produced and the building of processing facilities to serve specific market types; these procedures are costly. The shortage forces consumers (countries) to pay a higher price while producers (exporting countries) demand a higher price in order to bring the oil on to the market. US demand has increased as well because of strengthening economic recovery and the strengthened economy translates into a need for a higher grade of cure oil for the large numbers of Sport Utility Vehicles and other large cars and trucks. This low stock of oil scares consumers because they then anticipate future supply shocks and therefore the demand for oil will continue to rise instead of settle.
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