January 2021, came with hope, as vaccines arrived. The countries started unlocking cities like London, Mumbai, and Beijing started seeing traffic congestion as also crude oil prices started rising. During lockdown in 2020, the prices had come tumbling down, falling to $40 a barrel by May 2020. As the world shuttered businesses, issued stay-at-home mandates, and restricted travel, demand collapsed. The producers faced a glut and could not find space to store the barrels. By the end of 2020, OPEC instituted cuts in production, but this year's unlocking of the world, increased demand. Crude oil prices rebounded, as nations emerged from lockdown. Large increases in income due to economic activity led to a drop in inventories. OPEC (Organisation for Petroleum Exporting Countries) nations had initiated a cut in 2020 and could not immediately raise supplies. They urged non-OPEC members to meet the shortfall. The supply increased but could not keep up in pace with the increasing demand and so crude oil prices changed in January 2021. The price of crude oil in February reached to $60 a barrel, and as the countries kept getting vaccinated, demand surged, and prices rose. Will the rise in crude oil prices continue? Opinions are divided. Many countries are launching electric vehicles and hope the crude oil dynamics will change with rise in installation of batteries and recharging stations. On the other hand, technological advancements in shale, which reduces the cost of drilling, will bring about a change in price. Strictly based on the case study answer the following:- A. With the help of a neatly labelled diagram, compare the demand supply dynamics in May 2020 and in February 2021, bringing out the plausible factors and their impact on demand and supply curves. B. Do you think in January 2021 the prices will be higher or lower than 40 dollars a barrel? Explain using simultaneous shifts.
January 2021, came with hope, as vaccines arrived. The countries started unlocking cities like London, Mumbai, and Beijing started seeing traffic congestion as also crude oil prices started rising. During lockdown in 2020, the prices had come tumbling down, falling to $40 a barrel by May 2020. As the world shuttered businesses, issued stay-at-home mandates, and restricted travel,
A. With the help of a neatly labelled diagram, compare the demand supply dynamics in May 2020 and in February 2021, bringing out the plausible factors and their impact on demand and supply curves.
B. Do you think in January 2021 the prices will be higher or lower than 40 dollars a barrel? Explain using simultaneous shifts.
C. What impact will electric vehicles have on
D. Assuming the income elasticity of crude oil is 2, how would a 4 percent rise in incomes impact the demand of crude oil?
Step by step
Solved in 2 steps with 2 images
