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Monday, November 1, 2010

Steady Oil Price Hike Article Response and Peer Reviews

Steady Oil Price Hike Article Response and Peer Reviews-The article about the rising oil price indicates two main economic concepts: first, “the rule of supply and demand”, and second, that” human wants is insatiable.” Oil is a natural resource and it is created by nature through thousands of years. Time is a very important element in the production of oil. Despite the fact that oil wells and rigs are discovered and/or pumped, still, the natural element of this product is very important.

Going back to the relevant economic factors about rising oil prices, there is an unlimited demand for oil while its supply is getting scarcer. Aside from this fact, millions, if not billions, of dollars of investments are needed to have the black gold extracted, refined, and distributed. Everywhere oil is used. It is not only with the vehicles but also with all the machineries producing the goods and even food products that we consume on a daily basis.

The second economic factor is the insatiability of humans in terms of their wants. Everyone wants this and everybody wants that. We all consume. We all want to acquire resources. This relates to the article in a sense that: (1) more consumption means more oil consumption; (2) in acquisition of wealth, natural and man-made factors happen in having oil prices rise; and (3) investors in oil trade would always go for a good profit margin while consumers would like to spare resources (money). The first factor is related to the explanation of supply and demand above. The second factor is important because natural calamities such as storm affects oil production but this all goes back to the fact that once the supply of oil is limited, and the demand is big, the market has to balance out and the only way is to raise prices. This benefit the “wants” of the investors who, in every situation, have their means in having their investments get a very good return. Consumers on the other hand, take their chance in acquiring cheaper oil as they want o save their resources in order to have extra left behind to acquire the rest of their needs and wants and this is explained by having their tanks full before the prices increase.

Lastly, oil is not in market where fair competition rules. It is monopolistic. The major factor that makes it so important is its scarceness; its having limited supply with steady demand.

Peer review on responses 1, 2 and 3

In the first response, the idea that oil is very vital in society is agreeable. The rest of the discourse of the article, however, is strongly disagreeable. First, in the point indicated that “the oil industry is an example of a perfectly competitive industry” and at the same time noting that “neither the firm nor its consumers decide on the price, rather the entire industry”. First oil is a product that triggers monopoly whether consumers like it or not. Second, the article contradicts itself: if the industry decides on the pricing itself, not the interaction of the oil firms and their consumers, this means that the market is “not free”. Not free means NO competition at all. Lastly, the article noted that “consumers never worried about spending massive amounts of money on oil during an economic struggle” and it is not true. Oil makes everything else expensive and it may be possible that no demonstrations are done against oil but against economic crisis, but it is important to realize that at least 70% of that crisis can be attributed to oil price movement: your cereal will be expensive once oil used in machineries producing it becomes expensive!

Argument number two is also very good emphasizing the monopolistic characteristic of oil as a consumer product. The article even dwelled on deeply going into criteria of monopoly to establish the hypothesis, that indeed, this product is never a competitive product, in a sense that whether consumers like it or not, they are just forced to acquire oil out of necessity. The article is very “narrow” though. Maybe a little bit of expansion as to the idea of having it monopolistic and other related factors would even make the idea of the response more interesting.

Lastly, response number 3 is a very good work. Admittedly, my response runs on parallel path as this one. It emphasizes the scarcity of the product, the inelasticity of demand, which is always there, despite the presence of supply or not. It focuses in the effect of transportation though, just like what was written in the article, not like what I have though to widen my perspective in reacting to oil-related write up.


The first part of is a response to the following article (in green) and the later part is a peer review of my classmates' responses (in violet):

Drivers may want to fill up their SUVs, hybrids and motorcycles this weekend, because higher gasoline prices could be right around the corner.
Retail gasoline prices are expected to increase as much as a nickel a gallon in the next few days on the heels of a jump in wholesale gasoline and crude oil prices.

The biggest increases will be in the Great Plains, the Southeast and other areas connected to Gulf coast supplies, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

"They're going to go higher here in the next few days because essentially wholesale prices had a very strong week," said Kloza. "They've rallied in anticipation of the possibility of tropical weather in the Gulf."

California drivers likely will see the smallest change because prices there already are higher there than in much of the country .

"If we had (an) app, it would say, 'You might want to load up, your price is going to be higher next week,'" Kloza said.

The national average price for a gallon of unleaded regular gasoline was $2.718 Friday, down 0.5 cent from a week ago, according to AAA, Wright Express and Oil Price Information Service. For much of the week, the price has averaged about a quarter more than it was a year ago.

Travelers across the West are paying the highest prices, averaging from $2.853 a gallon to $3.497 a gallon. The lowest prices are in Texas, the Midwest and parts of the South.

Kloza predicted the national average would increase to $2.75 a gallon or perhaps a little higher next week.

Oil prices dipped Friday as worries eased about potential damage to Gulf Coast oil operations from Tropical Storm Bonnie.

The storm, expected to hit the Gulf of Mexico this weekend, has prompted some companies to evacuate crews from rigs. Dozens of ships that were working on a permanent fix for BP's damaged oil well already have been ordered to shore.

"It still appears zeroed in up through the production alleys heading toward Louisiana but updates suggest that it's not going to be a real powerful deal capable of doing significant damage," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

Oil traders, like investors and market analysts, also were waiting for results of a European investigation into the financial health of Europe's banking sector in the wake of the region's debt crisis.

Traders have been watching stock markets, corporate earnings and economic data for clues about investor sentiment and the strength of the U.S. and global economies.

Benchmark crude fell 57 cents to $78.73 a barrel in morning trading on the New York Mercantile Exchange. Oil has picked up about $2 a barrel since Monday
And now, I also want you to write me a peer response to my classmates responses about the same article " 1 paragraph long ? 100 word will be good"
Here is the response that I would like you to evaluate,

Oil has long been a vital necessity to society, it fuels our lives. It seems to be the one product individuals will purchase despite the price because their lives wouldn't be as easy without it.
The oil industry is an example of a perfectly competitive industry; oil has a large number of buyers and sellers, the market is huge, both the buyers and consumers are able to know competing prices and gas companies can go in and out of business without hurting anyone as long as they are replaced. The greatest factor that connects oil with perfectly competitive firm is that neither the firm nor its consumers decide on the price, rather the entire industry.
Over the past decade oil prices have continued to increase because of location, resources and politics but through it all consumers continue to purchase the black gold. I thought it interesting to see that the article mentioned that oil dipped when consumers were worried about the gulf coast operations yet consumers never worried about spending massive amounts of money on oil during an economic struggle.
Oil prices will continue to rise and fall but consumers loyalty never will. Oil firms are not a monopoly because they all sell the same product and don't have to worry about advertising because everyone needs oil. No matter what firm sells the gas, consumers will come and pay whatever amount the industry demands.

From reading this article and chapter 24, I've reached the conclusion that the oil industry is a monopolistic competition. The firms that control oil production have a monopoly on oil. They are also able to control the production of oil and therefore market price.

If we look at the characteristics of a monopolistic competition, we have a significant number of sellers in a competitive market. I think the oil industry certainly meets this criteria. Through their network of vendors, they can satisfy the enormous number of consumers throughout the planet. Another characteristic is differentiated products. Even though the gas product is similar but not identical (another characteristic of a competitive monopoly), the products are labeled differently. As far as sales promotions go, I noticed two large billboards downtown Portland today, advertising a new gas station downtown.

Initially, I thought the oil and gas industry didn't meet the easy entry requirement. But I guess if you compare to something that is patented for example, entry would be easy in comparison. I'm not sure if oil an gas producers have small market share though. Since there are a limited number of oil companies, wouldn't that mean that they have large market shares? Maybe I should be thinking of the gas stations and not the oil giants?

Gasoline is an inelastic product. Consumers everywhere depend on gasoline for all their transportation needs. Without a substitute for gasoline, people depend on it.

The demand for gas will become affected because the price is expected to increase in the future. When prices are expected to go up the demand for the product increases. That?s the trade off people face, purchase gas now, while the price is still low or purchase it later after it goes up. However

The cost will increase because the cost of business will increase. The lost in money from the potential storm have raised the price of production. removing people of the rig, means no work is being done, and they will have to increase the personal after the storm to help with the clean up that has spread because people was called back to shore and the store has spread it.

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