MIEC Project TA22 Group 2 by Bradley McPherson (T3HxALMIGHTY)

The Oil Industry.

shawnleeroocks — 2016-06-27 12:50:21 UTC

We will be discussing about the MicroEconomic effects on oil, the price floor/price ceiling, and demand and supply.

- OWEN

sohailicious — 2016-06-27 13:17:29 UTC

http://www.businesstimes.com.sg/energy-commodities/global-oil-demand-is-growing-strongly-leading-trader-says

- Basically it's saying that the demand for oil is in deficit of the the supply for it. Thus, this leads to dd > ss .

YI DA

aquilaproportions — 2016-06-27 13:19:28 UTC

Demand n Supply:

1)http://www.usatoday.com/story/money/columnist/2016/06/12/oil-supply-uncertainty-helps-pump-up-prices/85692674/

2)http://www.nytimes.com/interactive/2016/business/energy-environment/oil-prices.html?_r=0
In general, supply>demand.

Facts:
(SUPPLY)
-> US produce more oil. Thus, decreasing import.
-> Saudi, Nigerian and Algerian oil suddenly is competing in Asia markets. (was once only sold in US).
-> However, there was events which lead to the loss of oil production. But, the loss
(Demand)
-> Economies of Europe and developing countries are weak and are becoming more energy-efficient. Even though the there are signs that demand is growing in the US, the demand for fuel is still lagging a bit.

________________________
OPEC: World demand for oil and gas increases: (STATISTICS)

http://en.trend.az/business/energy/2549300.html

[Supply]

shawnleeroocks — 2016-06-27 13:27:43 UTC

http://www.ft.com/cms/s/0/7a6ccb4a-1c63-11e6-a7bc-ee846770ec15.html#axzz4CmnaINjn

This article is not about price floor.

kinya_fujiwara — 2016-07-16 13:38:19 UTC

Article says nothing about the price floor. But you can use this article to explain how the demand for oil is increasing in India. Remember to include concepts such as elasticity in your report.

Comment

kinya_fujiwara — 2016-07-16 14:24:10 UTC

Combine or pick one article to do analysis on demand & supply. You should include a diagram to show which curve shifts to which direction too. I see all of you doing the similar analysis over and over again - there's no point repeating the same thing in your report.

Include analysis of oil market using concepts of price elasticity, market structure etc.

You don't need to work on padlet any more, just start writing the report.

Mr Kinya

Oil prices fall [SHAWN]

Shawntastic — 2016-07-28 15:25:20 UTC

http://www.reuters.com/article/us-global-oil-idUSKCN0ZC15C

Prices dropped amid plunging global financial markets as Britian was taken out of EU.

However, most amount of oil comes from ASIA, so might not be a very huge impact.

Thus there are other major sources of oil, and that Britian leaving EU would not have a really great impact

Price Ceiling of Oil [SHAWN]

Shawntastic — 2016-07-28 15:25:33 UTC

http://www.marketwatch.com/story/why-50-is-the-new-ceiling-for-crude-oil-prices-2016-06-01

There's a lot of competition on oil prices being set, thus leading to an oversupply in a competitive market. However, low cost producers will bring in more oil, thus setting the price ceiling

Demand of oil [SHAWN

Shawntastic — 2016-07-28 15:26:08 UTC

http://oilprice.com/Energy/Oil-Prices/India-Putting-Floor-Beneath-Oil-Prices-As-Demand-Continues-To-Soar.html

Demand of oil in India rises, whilst supply stays the same. Thus there is a need to put a price floor to control the price of oil, to prevent the price from going below equilibrium price, as it might affect the economy of other countries who depend on producing oil for income.

Recently, India has emerged as the ''leader'' in the oil industry, as China's supply of oil has dropped. The price will then increase, and thus people will source for oil from India instead.

Report on http://oilprice.com/Energy/Oil-Prices/India-Putting-Floor-Beneath-Oil-Prices-As-Demand-Continues-To-Soar.html

Shawntastic — 2016-07-28 15:28:04 UTC

In India, the demand of oil is rising tremendously. This can be attributed to several factors, that can affect the ability and willingness of consumers to buy oil.

Firstly, the price of a similar good plays a very important part. When there's an alternative source selling a similar or identical item for a cheaper price, consumers are bound to go for the other alternative source. In this case, China was previously a very important supplier of oil. However, as China was filling their strategic petroleum reserve, the quantity of oil under the control of China dipped. As the law of demand states, there is an inverse relationship exists between the price of a good and the quantity demanded of the good, ceteris paribus. As the quantity of oil available decreases [Upward movement along dd curve, need graph here], the price of oil will significantly increase in China. However, there is another competitor in the market, India. Prices of oil there was stable, which attracted many consumers from countries including China to buy oil from India. Hence, the demand of oil in India increased. [Insert graph here]

Secondly, the demand of oil is price inelastic. If a small change in price produces a large change in demand, demand is said to be elastic. In this case, consumers are not very responsive to the price change, because the oil demand still rises as the price of oil rises in India. [GRAPH] There are also a few other factors which can influence the fact that demand for oil is price inelastic.

Necessities vs luxury is a very important factor that affects whether the demand of an item is price elastic or price inelastic. As stated in the article, ''the government is targeting new road construction on the order of 30 kilometers every single day. India’s vehicle fleet has doubled since 2007.'' This shows that it is a necessity as India needs more oil to fill all of the new vehicles under the control of India. Thus, the oil in India becomes a necessity, and the demand of an item becomes price inelastic.

Talk about relationship between price elasticity of demand and total revenue.
-Increase P =Increase total revenue, as consumers don't care about price change.
-%Increase in P is more than the % decrease in quantity, thus more revenue if you increase price.
-Link to how India is raising their price for oil.

-Income elasticity.

-Determine market type. -Oligopoly. [Few sellers in the market]
Reasons: Small amount of sellers, large firm producing most output
India has the resources needed, other countries do not have.
Barrier of entry to new firms -control of essential resources.
Use '"Game theory'' to explain.

Our Planning Stage

Shawntastic — 2016-07-28 15:29:41 UTC

Our Decision

Shawntastic — 2016-07-28 15:30:09 UTC

Income elasticity for oil.

aquilaproportions — 2016-07-29 02:38:26 UTC

It deals with how the demand for oil responds to a change in income of consumers.

- Generally, there is a rising per capital income for the people in India. "GDP is expanding at a 7.6 percent annual rate, gasoline demand is up 14.5 percent, and diesel demand is up 7.5 percent" (Graph)

- Oil is a normal good in India and it is income elastic. (Ey>1).
When income increases, the demand also increases. "GDP is expanding at a 7.6 percent annual rate, gasoline demand is up 14.5 percent, and diesel demand is up 7.5 percent." and "Crude oil imports have jumped by 12 percent so far this year from 2015 levels. ".

-Oil can also be income inelastic. This is because it is considered an inferior good as it is a necessity.

The oil industry as a oligopoly (China vs India)

sohailicious — 2016-07-29 02:48:31 UTC

[Insert Game Theory Table here]

Using the game theory, for instance, if China sells 1 oil barrel at US$4 and India does the same, they will have equal share of the market profits.

If one day, the China government wishes to drop the price of one oil barrel to $3 and India's government maintains the price, China would have more shares of the market profits as more consumers would buy from them due to the lower price. As a result, India would have a smaller share of the market profit. This would happen the other way if India drops the price of one oil barrel and China decides to maintain the price.

Price elasticity and total revenue

caleb3399 — 2016-07-29 02:53:07 UTC

Talk about relationship between price elasticity of demand and total revenue.

If the demand for a certain good is inelastic, an increase in price and unchanging demand, will result in more revenue per quantity of good sold, therefore it will result in an increased total revenue for the company.

Why is the price of oil not falling further

caleb3399 — 2016-07-29 03:09:09 UTC

India has created a price floor of $50/barrel of oil, they have done so by increasing their demand to buy up any oil that falls below $50/barrel, therefore the remaining oil being sold above that price remains available for sale on the market.