Unit 3: Supply and Demand and the Market for Labour

Ch. 6: Demand, Supply, and Markets

 

Growth in oil demand slowing even as supplies still grow: IEA

Oil demand is slowing down even as supply has never been greater, agency forecasts

CBC News Posted: Jul 10, 2015 11:06 AM ET Last Updated: Jul 10, 2015 12:04 PM ET

 

 

 

 

 

 

 

 

 

 

 

Global demand for oil is expected to drop next year even as the world pumps out more crude than ever before. (Associated Press)

 

Based on a fresh forecast of the global oil market, Canada shouldn't expect a rebound in oil prices anytime soon. They could actually fall further.

 

In an outlook released Friday, the International Energy Agency predicts growth in demand for oil will actually slow in 2016 to 1.2 million barrels per day from an average 1.4 million this year.

 

On the other end, the group's report on the oil market for July says global supply is surging, up by 555,000 barrels per day in June. Global oil production is now "an impressive" 3.1 million barrels per day higher than it was last year.

 

What precipitated a 50 per cent crash in oil prices late last year was too much oil and not enough demand. This report suggests the market could become even more off-balance, putting further pressure on the price of oil.

 

In mid-day trading, West Texas Intermediate was trading slightly lower on the news at $52.71 a barrel.

 

According to the Paris-based IEA, it's the Organization of Petroleum Exporting Countries, or OPEC, feeding the supply. Their output is at a three-year high, led by record levels of output from Iraq, Saudi Arabia and the United Arab Emirates. OPEC's oil inventory also hit a record in May of 2.8 billion barrels of oil.

 

Supply within non-OPEC countries like Canada and the U.S. is expected to grind to a halt next year, since low oil prices have energy companies making significant cuts to spending and thus production.

 

The IEA does expect strong consumption of oil in Asia, which could bolster the federal government's push to get our oil to markets outside of the U.S. via pipelines and ports on our west and east coasts.

 

Summary

            In an article published and written  by CBC news on July 10th, 2015, it is learned that there could be a further fall in the price of oil, despite the fact that the demand for it is decreasing. The International Energy Agency predicts growth in the demand for oil will actually slow in 2016, going from 1.4 million barrels per day in 2015, to 1.2 million barrels in 2016. However, the global supply for oil is continuously rising, with 3.1 million barrels being produced in July 2015, which is 555 000 barrels more than the year before. This is also what caused the huge drop in oil prices in 2014, having too much oil, but not enough demand for it. According to a Paris-based IEA, the Organization of Petroleum Exporting Countries (OPEC) is mainly responsible for the record high levels of oil supplies. The majority of the supplies coming from Iraq, Saudi Arabia and the United Arab Emirates. Supplies in non-OPEC countries such as Canada and the United States are expected to lower their oil productions, as the cheap oil prices are forcing energy companies to make significant cuts to spending and thus production. The IEA does expect continuous consumption of oil in Asia, which could encourage the Canadian Federal government to increase oil trading with countries outside of the United States. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Concept

            In class, the law of supply and demand have been discussed and learned. The article discusses how the global supply and demand for oil is changing. The law of demand states that as the price of a good decreases, then the demand will increase. The article contradicts this theory. Despite the fact that oil prices are decreasing and expected to continue to decrease, the demand for oil is also decreasing, going from a daily demand of 1.4 million barrels in 2015, to 1.2 million barrels in 2016. The article also contradicts the law of supply, which states that as the price of a good increases, then the supplies will increase. Global oil supplies are increasing through this year, however, the price of oil is dropping. Having a large amount of supplies of something, but not having enough demand for it will create a surplus. In this case, the world was producing a large amount of oil, but there is not enough demand for it. This is why a surplus was created, and why the price of oil dropped heavily. A surplus is the opposite of a shortage, which is when there is not enough supplies to meet the demand for a good or service. In this case, we do not have a shortage of oil, rather we are producing much more oil than what is necessary.

 

Law of Demand: If the price of a good or service rises, the quantity demanded by consumers will fall. If the price drops, more people will want to buy it, so the demand rises

 

Law of Supply: If the price of a good or service increases, then the supplies will be increases. On the other hand, if the price of a good or service decreases, then the supplies will decrease

 

Surplus: When the supplier has more products than the consumer wants

 

Shortage: The demand for a good or service is higher than the supplies that a vendor or supplier has