Demand and Supply of Oil in Australia

This report examines the impact of demand and supply on oil prices in Australia, referencing Jessica Resnick-Ault's article, 'Oil falls despite steep draw in US crude.' The report applies economic concepts like the law of supply and demand to explain price fluctuations. It discusses how reduced demand (due to factors like the end of the summer driving season and decreased refinery needs) and increased global supply (from OPEC) contribute to lower oil prices. The report analyzes both the positive (economic stimulus, lower inflation, reduced production costs) and negative (potential job losses in the oil industry) consequences of low oil prices for the Australian economy. The conclusion emphasizes the significant role of demand and supply in determining oil prices and suggests government intervention to moderate price fluctuations.

Oil 1
DEMAND AND SUPPLY OF OIL IN AUSTRALIA
Student’s Name
Course
Professor’s Name
University
(City) State
Date

Oil 2
Demand and Supply of Oil in Australia
Globally, oil is described as the engine of the economy. Mainly, this is because oil is a
significant raw material for many industries. For this reason, any changes in its supply and
demand considerably influence the rest of the economy. As such, alterations in its demand and
supply affect the prices of the commodity, which then influences the prices of other goods and
service. According to Jessica Resnick-Ault’s article, the prices of oil dropped. In her article ‘Oil
falls despite steep draw in US crude,’ reveals that the prices of oil in the country have fallen by
approximately one percent. Notably, the changes in price of the commodity are as a result of
changes in its demand and supply in the global market.
It is worth pointing out that the article implores the interests of various groups, among
them individuals and firms. Firstly, households may find the article interesting simply because
the global prices of oil influences their utility bills with respect to cooking gas and vehicle fuel.
In the same way, manufacturing firms may take keen interest in the article because oil is a
significant component in many production processes. For this reason, changes in the price of the
commodity greatly influence their cost of production, which in turn affect the prices they charge
for their goods and services. In addition, refining companies might also find the article
interesting as it informs them on the factors that cause significant changes in the prices of oil in
the country and the rest of the world.
Fundamentally, the issues presented in the article can be presented in terms of economic
concepts and theories. In this case, the concept of the law of demand and the law of supply can
be applied to explain the changes in the price of oil in the country as well as the rest of the world.
In economics, an increase in the demand of a product brings about a rise in its price (Amadeo,

Oil 3
2017). In the same way, a drop in the supply of the commodity leads to an increase in the price
of the product. Mainly, this is because a decrease in supply creates pressure on the available
amount, thereby pushing its prices upwards.
In the article, Resnick-Ault suggests that the gradual slowdown in the demand for oil has
significantly influenced the falling of petroleum prices in the country. Predominantly, the
reduction in the quantity demanded is as a result of the ending of the peak of the summer driving
season. In addition, the demand for crude is expected to slow down following decreases in
refinery needs by companies. Furthermore, it has slowed as a result of a decline in the number of
summer road trips within the country. All these factors combined, have adversely affected the
level of demand for oil and its related products in the country. Consequently, a reduction in the
demand for oil has caused a downward pressure on the price of the commodity in the country.
Effects of low demand on oil prices
Price supply curve
P1
P2
D2 D1
Q2 Q1 Quantity
Source: (Khan, n.d.).
In addition to demand, the supply of the commodity has played a major role in
influencing its price level in the country. More specifically, there is a global surplus of oil from

Oil 4
OPEC countries and the uses. Fundamentally, it arises from the fact that the global economy is
facing a significant growth in the level of output from oil producing countries throughout the
world. Primarily, economic theory dictates that when the supply of a good increases, a negative
and downward pressure is placed on its price. In the same view, the continued oversupply of oil
in the international marketed has placed a negative pressure on the price of the commodity,
forcing it to drop.
Effects of supply on price
S1
Price S2
p1
p2
Q1 Q2 Quantity
Source: (Khan, n.d.).
It is worth noting that the reduction in the price of oil in the country has both positive and
negative implications for the Australian economy. By and large, low oil prices act a significant
economic stimulus that brings about growth and development. More specifically, lower oil prices
lead to a reduction in the cost of transport for households and firms. In turn, this ensures lower

Oil 5
costs for businesses and ensures profitability. Additionally, lower prices leads to a reduction in
the level of inflation in the economy and, thus, ensures price stability. Moreover, it leads to a
decrease in the cost of production of manufacturing companies in the country, which then leads
to a decline in the prices they charge for their products. Thus, the combined effects of lower
prices in the country boost economic growth.
Even so, it is imperative to point out that a continued drop in the prices of oil in the
country may negatively affect economic growth. As such, it may force oil companies to go out
business to cut back on their production or go out of business. Consequently, this forces firms to
lay off some workers, leading to an increase in the level of unemployment in the country. thus,
eventually, a continued increase in the price of the product will be detrimental for the Australian
economy. In this regard, it is recommended that the government should control the demand and
supply of the commodity. This way, decreases in the price of oil would be moderate, and hence,
act as a stimulus to the Australian economy.
All in all, taking all factors into consideration, the demand and supply of oil plays a
significant role in influencing the price level in the country. Through Resnick-Ault’s article, the
reader discovers that low demand in the country has led to a fall in the price oil. In addition, a
consistent increase in the supply of the commodity has negatively affected its price. For this
reason, one notes that the forces of demand and supply are significant in determining the price
level of a particular commodity.

Oil 6
Reference List
Amadeo, K. (2017). Law of Demand: Definition, Explained, Examples. [Online] The Balance.
Available at: https://www.thebalance.com/law-of-demand-definition-explained-examples-
3305707 [Accessed 18 August 2017].
Johnson, S. Supply, demand, and market equilibrium. [Online] Sophia. Available at:
https://www.sophia.org/tutorials/economic-basics-supply-and-demand [Accessed 18 August
2017].
Khan, S. Law of Demand. [Online] Khan Academy. Available at:
https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-
equilibrium/demand-curve-tutorial/a/law-of-demand [Accessed 18 August 2017].
Khan, S. Law of supply. [Online] Khan Academy. Available at:
https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-
equilibrium/demand-curve-tutorial/a/law-of-supply [Accessed 18 August 2017].
Khan, S. Supply, demand, and market equilibrium. [Online] Khan Academy. Available at:
https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-
equilibrium [Accessed 18 August 2017].
Resnick-Ault, J. (2017). Oil falls despite steep draw in US crude. [Online] The Australian.
Available at: http://www.theaustralian.com.au/news/latest-news/oil-falls-despite-steep-draw-in-
us-crude/news-story/f89a7e35ae51086c13f40e8a03cb31b4 [Accessed 10 August 2017].