The Supply and Demand of the Oil Industry
Tiffany Turpin
Econ101
American Public University
Medani Adhikari

The Supply and Demand of the Oil Industry
The Worlds oil industries use the consumers to set prices. In mid 2014,the American people began to see a drop in oil prices across the nation. The factors behind the prices dropping is one of speculation. In this paper,the use of supply and demand in the oil industry will show why our oil prices are dropping and that they are projected to continue dropping into the near future. The United States has adversely curbed the use of fossil fuels by using renewable energy. This helps with the amount of oil imported onto American soil. This makes the United States closer to being self sufficient.
The United States, in 2014 became the worlds largest oil producer. We have become less reliant on imported oil from the middle east. The demand that has been expressed in recent year has now died off. Though the United States exports no oil, the that is produced is strictly for the consumption of American citizens. In June 2014, the price for a barrel of oil was $115 US Dollars(E.L .2014, December 8). This has dropped by about 40% in present day, The price today is now below $70 US dollars(E.L .2014, December 8). These Drops in oil prices are shocking after five years of the price never going down. This is something that has many asking why now, how can this be something that is even possible.
The way that prices are generated for oil is by using supply and demand. Demand is determined by the estimated energy consumption. In recent years, car making have drastically cut the amount of oil used in cars, By increasing the miles per gallon. Thus, lowering demand for as much oil needed. The reason our oil cost stayed relatively the same over the last five years also has to do with the use of heating and cooling. In the United States, most every consumer uses air conditioning in the summer and heat in the winter this used oil. The United States has explored other ways to produce these everyday necessities and has succeeded to a point(E.L .2014, December 8).
This leads to supply, there are four factors in the mix now these being demand has fallen due to weak economic activity, Increased efficiency in the nation and oil is being traded for other fuels. The second effect on these prices is the turmoil in Iraq and Lybia. These two nation produce around 2 million barrels of oil a day each, this conflict has not affected their output of oil(E.L .2014, December 8). The third reason, is that the United States is now importing less oil, Due the large spare supply built in the recent years,because of becoming the worlds largest oil producer. Now onto the United States Saudi Allies, Yes the Saudis could sell their oil to other countries and this would hold the price at a higher rate, but why would they want to sell to countries that they hate. It’s easier to sell to a friend(United States) for a lower price. Saudi Arabia has continued to produce oil their cost is about 5 to 6 dollars a barrel. The Saudis hold in their reserves about 900 billion dollars so one would think that they can afford to give their poor friend a break on it’s oil prices.
This however, opens up a whole other set of issues in the United states. The American oil producers can not compete with the rates that the Saudi Government is selling their oil for. This make Saudi Arabia a low cost leader and the United States Oil producers are now having to deal with prices they cannot match which makes them rivals. Competition is every where in the economy, the oil market is no different. The Saudis are selling their oil for the price it cost the American oil producers to make theirs. The tactic that the Saudis are using is pushing high cost producers out of business. This could put them back on top if this strategy works.
In closing, the use of supply and demand in the oil industry will showed why our oil prices are dropping and why they are projected to continue dropping into the near future. The fight for the oil crown is still something being fought. The fact that the United States has gained this crown and isn’t exporting it’s oil is astonishing. The price cuts in our oil will help The United States economy in the long run. Hopefully this will help the United States reach the top of the pyramid economically speaking.

References
E.L (2014, December 8). Why the oil price is falling.
Retrieved December 19, 2014, from http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-4

Sheikhs v shale. (2014, December 6). Retrieved December 19, 2014, from http://www.economist.com/news/leaders/21635472-
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