Supply-demand imbalance boosts oil prices David R. Baker, Chronicle Staff Writer Tuesday, May 27, 2008
Even as the cost of crude oil has soared in recent years, the amount pumped from the ground hasn't. Worldwide oil production has barely budged, despite record prices. Since the start of 2004, oil's price has gone from $33 per barrel to $132. Production, meanwhile, has risen just 1.8 percent, to 84.6 million barrels per day. That's not enough to keep pace with the world's growing thirst for oil, which has increased 3.7 percent during the same time. And the imbalance between supply and demand keeps pushing prices higher. It's one of the main reasons gasoline now costs more than $4 per gallon. This isn't the way economics are supposed to work. When a product is in short supply, the price rises, and the companies that make it usually produce more so they can cash in. Supply eventually outstrips demand and the price goes down. Faced with rising global demand and record prices, the oil companies have a powerful incentive to find, pump and sell as much crude as they can. Instead, they're having a hard time keeping their output level, much less expanding it. Big, untapped oil fields - often called "elephants" in the industry - are harder and harder to find. …
From this article, our knowledge of demand and supply can be used to analyze the current situation in which the oil industry is facing. As shown in Figure 1, production of oil has increased as stated in the article, thus causing the supply curve to shift from SS1 to SS2. At P1, the quantity supplied now exceeds the quantity demanded. There is now a surplus and the industry experiences a downward pressure in price. As price decreases from P1 to P2, the quantity demanded will increase from Q1 to Q2, while quantity supplied will decrease from Q3 to Q2.
As shown in Figure 2, demand for oil is also increasing as stated in the article, thus causing the demand curve to shift from DD1 to DD2. At P2, the quantity demanded exceeded the quantity supplied. This results in a shortage and the industry experiences a upward pressure in price. As price increases from P2 to P1, the quantity demanded decreases from Q3 to Q2, and the quantity supplied increases from Q1 to Q2.
In conclusion, by combining both graphs, an increase in supply and demand will cause the overall equilibrium quantity to increase from Q1 to Q2. However due to the larger the shift in the demand curve as compared to the supply curve, the equilibrium price will increase as well, from P2 to P1. As stated in the article, the production of oil is not enough to “keep pace with the earth’s growing thirst of oil” Post by: Crystal Beck
Updated. Posted at: 6:23 AM
Article: IEA Cuts Oil Demand Forecast to Lowest in Five Years
IEA Cuts Oil Demand Forecast to Lowest in Five Years (Update1) Share | Email | Print | A A A
By Grant Smith
April 10 (Bloomberg) -- The International Energy Agency expects global oil demand to decline by 2.4 million barrels a day this year, about the same amount that Iraq produces, as the economic slump reduces consumption to the lowest since 2004.
The adviser to 28 nations cut its 2009 forecast for an eighth consecutive month, slashing last month’s estimate by 1 million barrels a day, or 1.2 percent, to 83.4 million barrels a day. The IEA also said oil supply from outside the Organization of Petroleum Exporting Countries will drop this year...
Future Supply Constraint
Over the next five years global supplies will be “severely constrained by today’s lower prices and lower investment,” the report said. Spending on new production will likely be constrained by around 20 percent this year...
Need for OPEC oil “In response to weaker demand Saudi Aramco cut the May price for its flagship Arab Light to all regions for the first time in five months,” the IEA report said, referring to prices announced by the Saudi state-run oil company on April 5.
In general, the demand has dropped because of the following factor:
-Economic downturn: According to IEA, worldwide gross domestic product has dropped by 1.4%, causing the demand to drop by 2.8%. As income decreases, the ability of consumers/producers alike to buy the good will decrease, hence there will be a rightward shift in the demand curve (i.e. a leftward movement down the supply curve).
Also, the second part of the article stated that the future supplies will decrease due to today's "lower prices and lower investments". This is true because:
-Lower prices: Producers receive less profit, hence less income --> less ability to produce more goods to sell in future and reap more profits.
-Lower investments: Due to the instability of the economy, investors are holding back their money. This causes a reduction in the capital--Rmb that an economy's potential growth depends on its stock of capital in the present day such that there will be more output with an increase in the capital today (rightward shift of PPC curve). With a reduction in investment, there will thus be a reduction in the maximum possible amount of profits reaped from selling the output.
In the last part of the article, it mentioned that a producer will be cutting the price of the oil in hope of increasing the demand for oil. This is because the law of demand states that an inverse relationship exists between the price of a good and the quanitity demanded for the good, ceteris peribus. Hence a decrease in price will lead to an increase in quantity demanded for oil, thus the total revenue of the producers will increase.
Bernice (:
Updated. Posted at: 4:25 AM
Sunday, April 12, 2009
Merger between StarHub and Singapore Cable Vision
Reply on Proposed Consolidation Involving Starhub Pte Ltd And Singapore Cable Vision LtdReply on Proposed Consolidation Involving Starhub Pte Ltd And Singapore Cable Vision LtdReply on Proposed Consolidation Involving Starhub Pte Ltd And Singapore Cable Vision Ltd
Reply on Proposed Consolidation Involving Starhub Pte Ltd And Singapore Cable Vision Ltd
StarHub, SCV confirm merger talks
By Irene Tham
Wednesday, May 02, 2001 05:28 PM
SINGAPORE--StarHub Pte Ltd has confirmed that it is in merger talks with Singapore Cable Vision Pte Ltd (SCV), the island's sole cable TV operator.
The merger will give StarHub a residential network for carrying video, voice and data services. The telco currently offers fixed-line data and voice services to corporations and runs a mobile phone network. "The synergies are obvious. SCV has a nationwide broadband network that reaches all homes in Singapore," said StarHub president and CEO Terry Clontz in a joint statement Monday evening. "Both SCV and StarHub have a significant customer base in their respective areas of business, and the footprints of StarHub's and SCV's fixed networks complement each other very well," he added.
To date, SCV has more than 265,000 cable TV customers and 50,000 broadband subscribers, while StarHub has captured 10 percent of the Singapore mobile phone market, or 300,000 subscribers.
Heightened competition Analysts believe that the merger will increase competition for Singapore Telecommunications Ltd, the island's dominant telco.
"StarHub will have a full infrastructure to compete more effectively with SingTel," said an analyst with a foreign brokerage firm.
The merger will also allow StarHub to offer telephone services to the residential market, a plan delayed by IDA's sudden decision to liberalize the telco industry two years in advance.
Before the merger, both companies operate on two different markets. With the merger between StarHub and SCV, StarHub's fixed-line, wireless, long distance and Internet service business units will be combined with SCV's cable TV and residential broadband Internet access businesses.
Reply on Proposed Consolidation Involving Starhub Pte Ltd And Singapore Cable Vision Ltd
Benefits of the merger
There are many benefits of merging StarHub and SCV, one of which is to reduce potential competition between StarHub and SCV in terms of broadband services.
This is due to the possibility of the markets of the two companies intersecting in the future due to the fixed telephone line. Without the merger, StarHub might want to introduce new services such as the xDSL(Digital Service Line-a family of technologies that provides digital data transmission over the wires of a local telephone network) to its residential subscribers to convince its existing users to switch over to broadband (increase revenue) and to alleviate the amount of subscribers switching to other Internet Service Providers (company that offers its customers access to the internet) The xDSL service will likely be more popular among consumers as it uses high frequency, while regular telephone, that of SCV uses low frequency. Hence with the merger, there would be a reluctance to introduce xDSL services to residential subscribers as it will be easier to capitalize on one service rather than to focus on a new service.
By merging, the new company will create a stronger competitor to other telecommunication and internet service providers in Singapore and reduce SingTel’s dominant and monopoly on the telecommunications market. With the merger, the company will be able to increase its capital and resources to form a larger company. Therefore they will be able to introduce new services, go into the residential market (previously not possible due to StarHub inability to deploy a local access network in a short period of time, now possible due to services of SCV) and increase customer assurance by having better internet access. All these will allow the merged company to be a more effective competitor to SingTel.
Reply on Proposed Consolidation Involving Starhub Pte Ltd And Singapore Cable Vision LtdReferences:
OMG a big mistake committed by me!!!! There has been a careless miscount! There should only be 14 weeks in the span of the competition, NOT 24!!!Thanks to Leonard,Crystal and Xiongchen who pointed it out to me!!!
Hence new plan: 2 ppl will post per week (i.e. Sarah and Bernice, Clara and Connie, Crystal and Daniel etc...) Since the competition started 2 weeks ago, Bernice (myself), Clara and Connie will have to post by THIS WEEKEND and Crystal and Daniel are supposed to post by this week (but due to the short notice, crystal and daniel can have extenision till next wednesday :D )and the cycle continues!
Yep that's about all! Sorry for the mistake!! :P
Updated. Posted at: 8:52 AM
Wednesday, March 25, 2009
CNA: Current Crists Prime for Companies to Grow
Hello friends! Even with the guidelines I'm not very sure what to post haha. Okay never mind I shall just post something and cross my fingers that it's okay.
The winners of this year's Singapore Business Awards said the current crisis is prime for their companies to grow through acquisitions of smaller businesses and distressed assets.
...
Charles and Keith is putting its best foot forward to go against the downturn. It is stepping up expansion plans, with six new outlets in Singapore worth S$1.8 million by the first quarter of 2010.
My thoughts when I saw this was that these companies are investing in capital goods during this economic downturn - when everything is cheaper - so that when the economy improves, they'd be able to reap the benefits. That is, there would be an outward shift of their PPC.
Although investing in expansion right now means that less resources can be used to produce more goods now, it is actually more practical. Firstly, capital goods are generally cheaper now due to the poor economy. Secondly, many people have been retrenched or had their pays cut, and thus are less willing to spend on consumer goods. The demand for the goods thus falls. If Charles and Keith were to keep producing at the same rate, there would be a surplus of shoes.
Thus, it is more practical to invest in expansion and use less resources to produce goods. Not only would the goods not be in surplus, the greater amount of capital goods once the economy returns to normal would allow Charles and Keith to produce even more capital goods then. When the economy improves, unemployment rates fall, and companies are more free with giving bonuses and raising salaries. With this greater income, people are more willing to spend and thus demand increases. At that time, Charles and Keith would be able to meet this demand, preventing a shortage.
In conclusion, it is indeed the right time now for companies to aim for expansion by investing in capital goods. Companies should by all means capitalise on this economic downturn rather than be smothered by it.
To end off, I found this cartoon very cute. Opportunity cost :D Our favourite word, yes?
It's compulsory for us to come up with a roster for everybody to update the econs blog, so here comes the roster! The competition starts from today till 28th June. I've counted and there are a total of 24 weeks! So everybody will be in charge of posting onto the blog for a week each! If you're wondering how the remaining 2 ppl are gonna post, rest assured cos the 2 ppl will be Juliana and me, your ever-cute econs reps!:D Both of us will be posting as much as we can, so don't worry we'll be doing much more than you guys! (:
So basically, starting from this week, we will go down the resgister starting from Sarah (reg no. 2 cos i'm reg no. 1) and the person of that week will need to post at least 1 post that week. Of course, you're not restricted to one post only! Feel free to post as many posts as you want within that week (or throughout the 24 weeks for that matters) 'cos our blog will get more points if everybody posts alot! hehe xD On details of what to blog about, do refer to our econs blog's first post! Details about the competition are all there (:
Just a few reminders! Please remember to write down your name at the end of every post so that we'll know who posted and who hasn't. Juliana and I will be keeping an eye out for people who do not post!!! TSKTSK. Haha. Oh and if you haven't registered as a contributor to the econs blog, do check your email cos the invitation should be there. Do approach Juliana/myself if you have any problems ok! We econs reps will serve you our very best (:
On a final note, the econs blog will definitely help us improve our econs knowledge, so do participate in it actively ok! (: Enjoy Term 2 and visit the econs blog regularly for updates! :D
Love, Bernice(:
Updated. Posted at: 7:27 AM
Thursday, March 12, 2009
Economics Blog-C1 Inter-CT Competition
Hello 09S7E! Welcome to our very own Economics blog! The blog is open to everybody in our class to contribute, though there are certain regulations to follow as stated below:
1. All entires need to be original and not a duplicate of any print, otherwise, state the source of the entry and acknowledge the writer/author concerned
2. No obscene, offensive and indecent content containing raicial or ethnic slurs, explicit language or sexual content must be published
If you're wondering what you can blog about, here are some suggestions:
1. Review of interesting economic articles from journals/internet
2. Economic jokes/cartoons that illustrate certain economic concepts
3. Video clips depicting certain economic concepts
4. Q & A's "forum-like" postings on views and comments that are economics related among class members
5. Any other relevant economic postings that will enhance the class's blog (i.e. ILP work, essays etc)
Do note that this competition will take place between 23 March 2009 to 28 June 2009. The judging criteria is as follows:
1. Content relevance (application of concepts): 60% *Foe an eg, pls visit this blog created by C2 during last year's humanities week: http://hcc2econs.blogspot.com
2. Active and Consistent class participation: 30% * Econs reps will roster students to participate in this blog. If every student participates once, the class will get 20%, thus the remaining 10% would be reserved for classes with participation rate of more than that. **This component will also contribute to your INDIVIDUAL CLASS PARTICIPATION MARKS WHICH IS PART OF YOUR CONTINUAL ASSESSMENT
3.Creative use of multimedia (eg flash/music/photographs): 10% *Please ensure that the use of multimedia is not as the expense of navigation ease
Impt: Judging of the blog competition is NOT a one-time event but a series of on-going 8 weeks of assessment by Mrs Ip (i.e 23rd March-28 June 2009)
Now for the exciting prizes to be won! (:
Best blog will receive a cash voucher of $200! Next 2 best blogs will receive a cash voucher of $100 each. Results will be announced on 23rd July 2009.
We will be coming up for a roster for each of you to participate in this blog, so do look out for it and please participate actively in this event! Meanwhile, have a wonderful holiday next week and rest well! (:
