Seek Simplicity and Distrust It

Topics: Supply and demand, Peak oil, OPEC Pages: 3 (855 words) Published: August 14, 2008
An Internal Assessment of the Article:
Crude oil prices break through $100 a barrel barrier
From an Article by Haroon Siddique and agencies, Guardian Unlimited, Wednesday January 2, 20098

Most critics agree, the reason for the continuing rise in oil prices, is because of the simplest economic driver there is, ‘the balance between demand and supply.’ Haroon Siddique, author of the article ‘Crude oil prices break through $100 a barrel barrier,’ however, believes the main reason oil prices have recently become so high, was primarily because of ‘speculators.’ Even though this may be true for one time, we cannot explain the overall, general rising cost of oil without understanding the economical theories of ‘supply and demand.’ Oil is one of the most valuable and scarce energy resources in the earth, and in order to understand the reasons for the increase in the price, it is important to analyze the underlying forces of demand and supply. Oil is the most important and most widely used source for energy today, and there is nothing that shows scientists will discover an alternative in the foreseeable future. Therefore, the demand for oil continues to rise. The economics word, demand, can be defined as anything that consumers are willing and able to purchase during any certain time period. In the case of the rising cost of oil, the demand for oil is rising so rapidly that supply cannot keep up. Siddique suggests the major reasons these demands are increasing so rapidly is because of the growing economies of China and India. Now we need to examine the reasons that the demand for oil causes the price to increase. The value or price of something is mostly determined by the point at which the amount supplied equals the amount demanded. To illustrate this, look at the following case in which the supply and demand curves are plotted on the same graph:

On this graph there is only one price level at which quantity demanded is in balance with...
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