Market Equilibrium of Crude Oil

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Market Equilibrium of Crude Oil
Gina Brazelton
Economics 561
April 17, 2012
Dr. Jill Trask

Market Equilibrium of Crude Oil
Market equilibrium occurs when there is no shortage or surplus of a product, therefore, buyers and sellers get what they want. When there is a change in either the supply or demand this will eventually adjust to a new equilibrium of price and quantity. Right now, industries are not only faced with ever-changing periods of consumer demand but their own production inventory levels, costs, as well as how to price competitively and still make a profit. For the buyer, the main concern is product affordability. Market Price and Crude Oil

Products, such as crude oil, experience fluctuations during times of scarcity and oversupply. These swings are the result of various interruptions ranging from oil embargos to foreign crisis. Most recently, there has been a decrease in the production of oil as a result of concerns about inventory, increase of demand in Asia, and civil unrest in Middle Eastern countries and North Africa (Williams, 2011). At present, there is a high - demand for oil and its byproducts in America as well. According to Nationmaster.com (2012), the United States leads in the consumption of crude oil followed closely by China. As of March 30, 2012 this decrease in production and increase in demand has gas and oil prices at around 123.81 per barrel for Brent, the oil used in Europe and 101.12 for West Texas Intermediate (WTI) used in the United States (eia.gov, 2012). Although both are crude, they are not the same. Brent comes from the North Sea, is similar to oil from Saudi Arabia and is used globally (Kleinman, 2011). WTI oil is domestic and is the benchmark for pricing in America (Kleinman, 2011).

Comparing prices of crude oil from the same period a year ago, levels show a decline of $4.63, but the rates are still over $100 per barrel (eia.gov, 2012). The demand for oil and products made from it as wells as Middle...
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