Per the article:
Benchmark crude fell by 78 cents to finish at $98.78 per barrel in New York on Monday. Brent crude, which is used to price foreign oils that are imported by U.S. refineries, lost 71 cents to end at $110.75 per barrel in London.
The Commerce Department said Americans kept a tighter grip on their wallets in December. Consumer spending was flat, even though incomes rose by the most in nine months. The economy relies heavily on consumer spending, and analysts say the economic recovery could stall and energy demand may stay weak if spending doesn't pick up.
Meanwhile, Iran welcomed international weapons experts into the country in hopes of refuting claims that it is building a nuclear weapon. That eased concerns about possible military action in the region. Still, Europe plans to embargo Iranian oil this summer to pressure Iran about its nuclear program. If that happens, Iran says it could retaliate by blocking passage through the Persian Gulf, where tankers carry one-sixth of the world's oil exports.
The U.S. is ready to implement sanctions on Iran's central bank that will make it harder for Iran to sell oil.Gasoline pump prices rose by a penny on Monday to $3.43 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is 15.3 cents higher than it was a month ago and 33 cents higher than it was last year. [[CHRIS KAHN, AP Energy Writer]
What is at work in this article are many of the factors influencing supply and demand for oil and for gasoline as well as heating oil.
Questions for comments: How do these disparate factors affect market supply for oil, as well as its equilibrium price and quantity?
Additionally, consumer spending has been said to be flat--as in not changing much recently. Households have kept a tight grip on their wallets, despite gradual increases in income levels. In recent readings and in class, we've learned about how income levels can affect the market demand for various goods and services. Certain goods/services are more sensitive to changes in income level than others.
To my students: I want you all to give careful consideration to this article, the material covered in class and how it affects these markets. Drawing graphs for S & D curves to illustrate it would be helpful. I will post an update to this article during the weekend with my responses, but I want to see NUMEROUS student comments on these questions first. This will help reinforce what you have been learning in your reading and in class meetings!
Success to you all!!!
Prof. Hank
The supply-side sunspot activities will likely affect the oil producer to force them to drop the oil supply. Thus, it will make the equilibrium price go up and equilibrium quantity go down.
ReplyDeleteOn the other hand, gasoline and heating oil are normal goods. If there's an increase in income levels of consumers, the demand of gasoline and heating oil is likely to increase.
Additionally, there are other non-price determinants of demand affect the market, such as changes in consumers' expectations of the future, and demand-side sunspot activity. In these determinants, changes in consumers' expectations of the future has the strongest effect on demand for gasoline and heating oil. Consumers are anxious about a political disturbance that could lead to a serious shortage of oil supply. Thus, businesses and households expect the price of gasoline to go up higher in the near future. Consequently, the demand of gasoline will go up as well as the equilibrium price and quantity.
In conclusion, if the situation in Iran turns worse, it will dramatically impact the oil and gasoline market. Not only the supply of oil will decrease, but also the demand of gasoline will increase. Both will make the price of gasoline go up significantly. Oil is also a necessary resource for many products on the market. It would not only hurt directly consumers' pocket, but also affect badly on the economy.
Thang Ngo
ECON 2302 - Spring 2012 - MW 11.30a
Mr. Ngo:
ReplyDeleteVery good on several levels. The only thing missing is a graph! If you were to draw the graph, scan it and post it as an attachment (We need to figure out how to do that) it would have been great.
The only thing I could add is that if consumers keep their spending down it could hurt things more on a Macro level. Since you're in 2302 however, I wouldn't necessarily expect that of you.
Good job!
Prof. Lewis