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Microeconomic Scenario of the Crude Oil Industry

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MICROECONOMICS TERM PAPER: AN OVERVIEW OF THE CRUDE OIL INDUSTRY
Group 3:

ASEEM ROHATGI | PGP 14 -010 | DHEER VORA | PGP 14 -015 | KARANVIR SIDANA | PGP 14 -025 | PURBASHISH GANGULY | PGP 14-046 | SIDDHI AGARWAL | PGP 14 -067 | SPREHA KANIKA | PGP 14 -069 |

THE CRUDE OIL INDUSTRY
Crude oil industry is the largest industry in the world in terms of dollar value. Crude oil or petroleum satisfies almost 33.6% of the world energy needs. It is also the most traded energy resource in the world. The demand side factors are guided by the energy needs of the world which is still dependent on non-renewable sources, while supply is determined by oil rich countries. The prices are fluctuating owing to influence of the spot market.

Trends in Demand
An above average GDP growth in non OECD countries has significantly pushed the demand for all types of energy in an upward direction. Where the consumption of energy by OECD countries has remained steady with the growth rate of 0.9%, the non-OECD nation’s growth rate reached 5.5% in 2010. Even though there has been a significant upsurge in all types of energy, oil still remains the world’s leading fuel.
In the current scenario, where the global oil consumption is surging, the production is unable to match such high growth. In the year 2011, the demand grew by 3.1% whereas the increase in supply was only for 2.1%, attributing to the implementation of OPEC production interruptions since late 2008. Therefore the unmatched demand and supply resulted into a consequent decrease in inventories.
Demand for oil is relatively inelastic with respect to income in the advanced, OECD economies. However, income elasticity of demand (YED) in developing economies like China and India is likely to be higher, with estimates suggesting that YED is close to 1.
Oil has possible close substitutes in the form of other energy...

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