The article “why the price of filling up has been going down” talks about the effects the war in the Middle East has on the supply of oil. The average diesel and gas prices in the market have fallen.. The prices of diesel have fallen and are expected to keep falling. The article highlights the prices of oil in the summer, which is the driving season, are high due to demand (Alan,2014). After summer, the prices drop due to the additional of cheaper fuels like butane and decreased demand. The other reason for the drop of oil prices is the booming energy production in Texas, Middle East and Pennsylvania, which is attributed to the spread of hydraulic fracturing.
The United States aids in keeping the international market awash concerning crude oil. The United States market is oversupplied with cheap crude, and this trend is said to continue. The supply of oils in the country is expected to increase with more countries adopting the franking operations. The supply of oil is indirectly proportional to the demand. The economy globally is on a slow growth, and this has weakened the amount of oil. The other reason is the invention of fuel-efficient cars and fewer Americans driving. Grocery chains cheap to lure consumers have priced the prices of oil. There are zero margins of sales from gas stations, and people are forced to make it up with convenience stores. The four factors facing oil in the United States are a subsiding demand, rising supply, seasonal changes in fuel and extreme competition in the market (Alan,2014).
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The supply of oil has overwhelmed the demand, and this has diminished the prices. Oil) market stakeholders are assessing what price can absorb the increasing oil output (Kilian, 2009). The growth of supply is relentless. Increasing the prices would require the participants to reduce supply. The oil falling prices have prompted the cutting of production. Though there is a significance reduction in production, a larger reduction would be required to enable market rebalancing. Incremental demand can only be achieved by additional cuts. The effects for the increased supply and reduced demand are speculators and hedge funds cutting aggregate bets. The violence that experienced in the Middle East has not dented the supply of oil and gas, adding to the severe supply glut.
The supply and demand of oil are seasonal with summer being referred to as the driving season. A key feature would be a low price elasticity of demand associated with oil. The real price of oil historically has been permanent and unpredictable but summer registers an increased demand and increase in prices. The price elasticity of demand regarding oil, which is how the demand of oil responds to changes in price, is little in the summer and so is the income elasticity (De Salles, 2013). There is a small price elasticity of oil in the summer reason being individuals travel more, and the increased prices of oil do not decline demand. The demand and supply of oil are both relatively inelastic within a short time. Price changes impact quantity demanded or supplied less. The change in supply has caused substantial changes in prices, reducing the price. In summer, the price increases so do demand, meaning it is inelastic.
I agree with the articles comments about the escalating supply of oil and the effects it has on prices. The decline in oil supply may not be in sight. There are many conventional ways that have been discovered for producing oil, globally increasing reserves and development of resources for oil. The price of crude oil is global, regardless of the amount that is produced, consumers will always be impacted by the price. The overall global demand has been low, and the supply is overwhelming, meaning the prices will keep diminishing.
