The Power of the Market: Part 2

by Elaine Schwartz    •    Jul 28, 2011    •    535 Views

World oil demand has hit a new high. But not from everyone.

Called the “New World” and “Old World” by economist Ed Yardeni, you can see through his graphs, the divide in world oil demand. China, India, Brazil and other emerging economies want increasingly more while the U.S., Japan and Western Europe do not.

Still though, with total demand moving upward, so too is the price per barrel. Well beyond its recent June 24 low of $105.52, you can see here, that the price of North Sea Brent is close to $118. Interesting that on June 23, the International Energy Agency (IEA) announced its member nations would begin releasing 60 million barrels from their strategic petroleum reserves (SPR) to offset potential price increases from a Libyan disruption.

Are 2 million barrels a day for 30 days making a difference? Or, is the market too powerful? You can decide.

The Economic Lesson

The SPR release shifts the supply curve. Emerging economies have moved the demand curve. When demand moves further to the right than supply, price rises.

You can read more about oil here and here.

An Economic Question: Dr. Yardeni suggests that when world oil demand is up 2.5%, world GDP will rise by 5%. Why might he have connected the 2 numbers?

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