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Crude oil are known to be necessity for cars to run on. With that being said, drivers will not be responsive to the increase in price for fuels as they are price inelastic. This would mean that the demand for fuels will likely remain the same or that there would not be much of a change.

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President Trump made an announcement to withdraw the United States from the Iran nuclear deal an led to increase in the prices of crude oil. Furthermore, Tom Kloza with Oil Price Information Service says there are other factors pushing up prices. Kloza says the biggest reason prices are up now is that supply and demand are tightening.

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Furthermore, OPEC oil cartel and other oil-producing countries — notably Russia — have agreed to restrict production (decrease in number of sellers)- The decrease in supply of oil (supply curve shifts left) would lead to shortage (quantity demanded > quantity supplied) and cause the equilibrium price to increase significantly.

Due to globalization, economies across the globe are booming, which means people are driving more- this led to a burst in demand for transportation fuels. The increase in demand is due to the increase in money income(when the economy prospers, the incomes of people are likely to increase) and the number of buyers (due to increase in money income). This means demand curve shifts to the right.

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Analysis on:
Article #1
Oil Prices Rise After Trump's Iran Speech, But Supply And Demand Also Fuel Increase

Reference:

Article #2
Oil jumps 3% on Saudi price target, US stockpiles

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Effect of the current increase in oil prices

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Effect of the current increase in oil prices

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Short term:
Prices would increase further as :
1) People are driving more as "economies across the globe are blooming", increasing the demand for fuel and thus an increase in oil prices.
2) Agreements between organizations and countries like between the OPEC oil cartel and Russia to "restrict production to boost prices" cause prices to rise.

Long term:
Prices would start to decrease as :
- Production for fuel increases as "oil production is booming in the US". This is seen in "The EIA projects domestic crude production will rise to nearly 12 million barrels a day in 2019 - that's a million more barrels of oil a day than the country is expected to produce this year." This means that supply will eventually be greater than demand, causing a decrease in price.

(Justin Lai)

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Why did oil price jump nearly 3% recently?

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Why did oil price jump nearly 3% recently?

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- United States' oil stockpiles fell across the board with petrol and distillates drawing down more than expected on stronger demand.
- Crude inventories dropped by 1.1 million barrels as a result of a decline of 1.3 million barrels per day in net crude imports.
- Saudi Arabia wants to see the crude price closer to US$100 a barrel.
(Nur Suhaila)

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- Even when the oil prices increases to an unreasonable price, the demand is still high.
- "Beyond the headlines, petrol demand was very strong, virtually summer-like, and crude oil exports are climbed back toward 2 million bpd at 1.75 million."
- Since the oil price increases, this means that the supply has decreases, which is stated in the article, "Despite an oil price of over US$70 per barrel and the fact that the oversupply has been eliminated, a phase-out of the production cuts will not be on the agenda"

(Noor Amirah)

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How does the rise in oil price affects Quantity demanded?

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How does the rise in oil price affects Quantity demanded?

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As the oil price rises, quantity demanded for crude oil will decrease as well.

This is so as there is decrease in the amount of crude oil drivers can buy with the same amount of income they earned. This means that the drivers' real income have decreased with the increased price. In other words, they will have a decline in ability to purchase more oil (income effect).

The increase in oil price applied to all fuels, thus there would not be many alternatives for the drivers, making them less willing to search for alternatives or to buy more crude oil due the increase in price (Substitution effect).

These will cause a change in quantity demanded for crude oil as the amount which drivers are willing and able to buy, in a given period and with all other things remained constant, decreases.

Since there is a drop in quantity demanded for crude oil, there will be in downward movement along the demand curve.

Evidence: "President Trump's announcement that he will withdraw the United States from the Iran nuclear deal sent crude oil prices up slightly. U.S. drivers who have noticed higher prices at the pump may be tempted to blame Trump's Iran decision"

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In the article, it stated that: '"We will be instituting the highest level of economic sanctions," Trump said. Other nations that do business with Iran also could face U.S. sanctions.'

From this, it is evident that Trump's decision could eventually mean less oil on the world market from Iran - the U.S. will reimpose economic sanctions on Iran that were lifted as part of the 2015 deal. This has led to a decrease in the market supply of Iran oil due to decrease in number of sellers. This means that the supply curve will shift to the left.

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Why does the decrease in supply of crude oil caused a increase in oil price?

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Why does the decrease in supply of crude oil caused a increase in oil price?

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Due the decrease in supply of crude oil, a new supply curve will be drawn. The new supply curve will cause a shortage in crude oil.

There will then be an upward pressure on the price of crude oil as buyers will be forced to bid up the price.

As the price increases, sellers will sell more and the drivers will buy less crude oil till market equilibrium.

Thus, there will be an increase in oil price so as to eliminate the shortage in crude oil.

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Other factors contributing to the rise in oil prices:

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Other factors contributing to the rise in oil prices:

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Another factor is that Mr Trump has decided to pull the United States from the Iran nuclear deal, causing the prices for crude oil to increase.

The last factor is that there are uncertainties during the elections in May (2018) in Iraq, Lebanon and Venezuela.