Supply of crude oil

In most nations, the availability of crude oil is critical to numerous activities such as transportation, manufacturing, and many others. According to reports, world oil demand stands at 1.6 million barrels a day (Rigzone Staff, 2017). As a result, fluctuations in oil markets have a direct effect on the United States economy. With this in mind, the economic theory of demand and supply is founded on the fact that a commodity’s cost is directly proportional to the rate of demand and supply. The oil sector in the United States is no exception to this rule, and it has an impact on the country’s economy. There are some factors which affect the demand and supply of oil in the U.S. These factors include the rate of oil consumption, exchange rates of the U.S dollar against the world_x0092_s major currencies, and oil reserves in the country, environmental factors, political factors, and speculation.

The demand and supply of oil has various effects on the United States. For instance, when there is an inadequate supply of oil, it becomes expensive. When the oil is expensive most Americans will stop using their vehicles to work and adopt public transport where possible business people will start practicing energy conservation measures to reduce the consumption of oil. Additionally, more money will be used to fund research centers so that new, efficient and cheaper forms of energy can be invented. On the other hand, if there is a lot of oil supplied, its price will decline meaning many people will afford it. Therefore, many persons will start using their vehicles to travel. New methods of drilling the oil will also be invented and people will research how the oil can serve other different purposes. A good oil supply also leads to the destruction of the environment as many industries will be running. For instance, the industries will be emitting toxic fumes to the environment; this can make people suffer from diseases like asthma. Additionally, it can lead to global warming as the ozone layer is destroyed. People who are most affected by this include flight attendants and those who live in Houston, which is popularly known as the _x0093_energy city of America_x0094_ (Hand, 2017).

The economy is no exception when it comes to the effects of demand and supply of oil. When there is an insufficient supply of oil, it becomes expensive hence more families will spend a lot of money on gasoline and other products will be left out. The cost of production will also increase hence few people will have access to essential goods. Therefore, this leads to inflation because the production cost will be passed on to the consumers. This leads to a reduction of wealth and future uncertainties, therefore, leading to deterioration of the economy. Conversely, sufficient supply will lead to reduced cost of production which leads to lower prices of goods and services. Thus people will be able to buy all the things they need and will be encouraged to set up more investments thus increasing economic growth (Arezki, Quintyn, Toscani, & International Monetary Fund, 2017).

When there is an increase in demand for oil and supply remains unchanged, the demand curve will move to the right causing the equilibrium to increase. The decrease in demand will lead to the demand curve moving to the left thus resulting in equilibrium being reduced. On the other hand, an upsurge in oil supply results in the supply curve shifting to the right hence causing equilibrium to decrease. The decrease in supply will to the supply curve shifting to the left hence increase in equilibrium.

References

Arezki, R., Quintyn, M., Toscani, F., & International Monetary Fund. (2017). Oil Prices and the Global Economy. Washington, D.C.: International Monetary Fund.

Hand, M. (August 28, 2017). Houston residents breathe in toxic fumes as petrochemical facilities cope with Harvey. Think Progress. Retrieved from https://thinkprogress.org/houston-toxic-air-after-harvey-ecb68ada3d36/

Rigzone Staff. (June 14, 2017). Global Oil Consumption Rate Grows. Retrieved from http://www.rigzone.com/news/oil_gas/a/150582/global_oil_consumption_rate_grows/