Article Analysis – Oil Prices Ease on US Petrol Demand Worries, Economic Data

Article Analysis – Oil Prices Ease on US Petrol Demand Worries, Economic Data

The article by The Business Times (2024) is selected for analysis in this paper. The paper pays attention to the recent easing of oil prices in the US, which has recently sparked concerns about weaker US petrol demand and economic data. The article highlights the potential impact of high interest rates on economic growth and oil demand. Essentially, these issues have a backing in economic theory upon which the discussion is built. In conducting this article analysis, four categories are considered after reading through it. These include the impact of interest rates on oil demand, US petrol demands, inflation expectations, interest rate cuts, and production cuts influenced by OPEC alongside Middle East Tensions.

The article asserts that high interest rates can be used to tackle inflation and thus reduce oil demand and weigh in on economic growth. Notably, these items have a basis in economic theory, and they are economic concepts that can be used to assess the state of the economy. For instance, higher interest rates increase borrowing costs for consumers. Even larger organizations will reduce their borrowing expenditure when interest rates are high. The overall result of this will be reduced spending and investment, which has an impact on the economy whereby the oil demand can be reduced, and it is an aspect that is closely tied to the economy. A close look at the article’s assertion that interest rates are likely to influence oil demand in the US identified various aspects. There is a strong consumer spending environment for gasoline, and its demand is a crucial aspect to consider. When the sales in this sector increase, it reflects an enhanced economic activity. However, an increased output of oil will mean an increased supply in the market and lead to reduced prices for the commodity. Therefore, demand for the product will be stimulated to increase.

Interest rates, as mentioned in the article, are expected to remain higher for a long period. Notably, this could have an impact on the demand for oil by dampening it as the ability to borrow and spend will be limited. On the contrary, higher interest rates are likely to strengthen the US dollar against other currencies and make oil and gas products expensive for other currency holders (Schiller & Gebhardt, 2016). In the international market, the overall demand for oil and gas products will reduce. Other than interest rates, the article mentions an attack by Iran as a factor of geopolitical tension, which has the potential to influence demand for oil and gas products. Notably, this is so because such tensions cause uncertainty in the market and influence the supply chains for the products. With reduced supply, there is a likeliness of higher prices.

The second aspect of consideration for the article under analysis reports and includes US crude oil inventories. It is noted that the increase in inventory levels for the inventories was unexpected and thus has far-reaching economic impacts. Essentially, it is a reflection of a weaker demand environment, which had been anticipated in the past. This implies that in the summer, there is an expectation that gasoline consumption will go up and that people will be driving during that season. However, caution must be taken against the current demand for oil. The country’s increased oil reserves and possible weaker demand environment can be evaluated through the lens of economic concepts.

Some of the concepts that apply to this situation include higher prices and a shift in consumer behaviour. Regarding higher prices, the increased inventory of oil products could be due to reduced demand for the products, as the country recorded the highest retail price in regular-grade gasoline since 2014. The high price reduces demand and thus creates a weaker demand environment. Concerning shifts in consumer behaviour, there has been a recovery from the COVID-19 pandemic as people reduced their movement. In return, this may have created a lower expenditure rate on gasoline products and increased the inventories for the products.

The article points to a resurgence in inflation and its unprecedented impact on oil and gas product demand. The Federal policy is often evaluated when handling inflation. Inflation on its own is an economic concept that points to a general increase in the prices of commodities, which results in the lessening of demand for the affected products. As the rate of inflation increases, the input production prices increase, and this can be passed to the final consumer through increased end-product prices. The Federal Reserve is tasked with maintaining price stability, and its cautious approach to inflation causes uncertainty in the market and wariness of traders regarding the future demand for crude oil. The trader’s behaviour is likely to change based on Federal Policy decisions regarding employment and price stability. The target of 2% inflation may not be realized, and the potential increase in the rate is likely to cause disruptions in the supply chain. Essentially, this calls for a careful handling of policy decisions to ease the worry of consumers on matters of oil demand.

The article also focuses on an upcoming event of OPEC and its potential impact on the global oil market dynamics. It also has various impacts that can be based on economic concepts. Stakeholders in the oil and gas industry will be monitoring the outcomes of the event to make major economic decisions. Notably, this is so because the organization has made decisions in the past that influenced the balance in market demands and the stabilization of crude oil prices. The organization introduced a production cut aimed at stabilizing crude oil prices, and as a result, the global crude oil supply was reduced by 6% (The Business Times, 2024). The cuts are one of the aspects that stakeholders will be watching for in the next meeting, as mentioned in the article being analyzed. Notably, the demand and supply of oil products will be affected by the meeting depending on the decisions. However, the uncertainty regarding the potential outcomes of the meeting affects the market, with people holding on to their reserves while awaiting the next direction. If the direction favours them, demand will increase, and more sales will be made, while a reduction in supply is likely to push prices high.

Overall, the oil prices form a central focus for the article analyzed. The article focuses on a worry borne by stakeholders in the oil and gas market due to various reasons and how it is likely to shape upcoming events. From the economic theory point of view, the article points to a huge role played by supply and demand dynamics in the oil prices in the US market. Further, interest rates play a role in oil prices, as implemented by the Federal Reserve.

References

Schiller, B. R., & Gebhardt, K. (2016). The micro economy today. McGraw-Hill Education.

The Business Times. (2024, May 29). Oil prices ease on US petrol demand worries, economic data. BT. https://www.businesstimes.com.sg/companies-markets/energy-commodities/oil-prices-ease-us-petrol-demand-worries-economic-data

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Students will individually evaluate an article from a news publication (good sources are the Economist, Wall Street Journal, Financial Times, Business Week, Forbes, or Barrons). While the choice of articles is yours, its focus must be on an economic or business issue. The objective is neither a research paper nor a summary of the article (attach a copy of the article to the paper for this). It intends to demonstrate a critical analysis of the article’s content by relating to the economics concepts introduced in the course sessions using your notes and the text. Papers should be no more than 5 pages, no less than 4 pages, typed, 12-point type, and double-spaced using one-inch margins. There will be a reduction in the grade if the guidelines are not followed.

Article Analysis – Oil Prices Ease on US Petrol Demand Worries, Economic Data

Length requirements do not include title page, references, and/or images if used. When necessary, use in-text citations in APA format. Otherwise, include a references section in APA format.

To guide your efforts, do not write simply to demonstrate what you know. Write to demonstrate what you know because it relates to or explains the chosen issue using economics concepts.

Please include key terms from the textbook and an understanding of them to show an understanding of the economic terms being taught