The Oil Industry
The oil industry is extremely large and is something people around the world cannot live without. The rise in the cost of oil in the past year has hit all time highs and there does not seem to be any cost relief looming in the near future. Oil is a necessity for Americans and due to the high costs of gas, many are trying to find alternative ways to save money, such as car pooling, riding motorcycles instead of using a vehicle or being more conscious about the amount of one drives in a day. The price of oil affects nearly everyone in the world. The population is growing more and more as each year passes, thus creating a higher demand for energy. More oil can be discovered by companies, but they are not willing to increase refinery capacity because people do not want to be anywhere near them. The existing refineries are old and have been updated within, but there have not been any new refineries built in decades. This paper will discuss many effects that have an impact on the oil industry and will provide an economic profile to give insight of how the process works.
Shift and Price Elasticity of Supply and Demand
Supply and demand curves are shifting constantly. Prices move to match supply and demand. As of April 16, 2008, the price of oil hit an all time high at $115.07 per barrel. As we near the summer months, it is estimated to climb even higher. According to Michael Lewis, there are several factors that determine the price of oil; inflation may have the largest effect (Crude Estimates, 2008). The price elasticity of demand for the oil industry is inelastic. Oil is a necessity and regardless of price, consumers will have to pay the cost to live. Change in the price of oil leads to movement along the demand curve, while change in demand shifts the entire demand curve. High fuel prices do not affect demand; it affects the quantity of gasoline demanded. Most people in America own vehicles and require gas in order to travel to...