StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Managing Gas Prices and the Law of Supply and Demand - Article Example

Summary
The article "Managing Gas Prices and the Law of Supply and Demand" focuses on the critical analysis and discussion of the relationship between gas prices and the law of supply and demand that play a major role in the managerial principles during the managerial classes…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.1% of users find it useful
Managing Gas Prices and the Law of Supply and Demand
Read Text Preview

Extract of sample "Managing Gas Prices and the Law of Supply and Demand"

Running head: Managerial Gas Prices and the Law of Supply and Demand Introduction In the field of management, there are different events which the manager needs to comprehensively understand in order to ensure that the company or the organization he is managing would not collapse or fail. These events or processes often dictate the direction of the organization; and on a larger scale, these processes are affected by, and they also impact on other organizations and global managerial dynamics. In the article of Ana Campoy and Russel Gold, entitled ‘Gas Demand Edges Higher, Lifting Crude,’ the relationship between gas prices and the law of supply and demand plays a major role into the authors’ analysis and discussion. This article shall now discuss the different elements of this article in relation to the managerial principles discussed during our managerial classes. Discussion Most of our industries, automobiles, machineries, and other mechanical equipment are run by oil. We have become highly dependent on oil and its petroleum products. There is much credit in stating the fact that our industries and everyday activities would not successfully be carried out without oil (Lefton and Weiss, 2010). It is therefore no surprise that many oil companies and conglomerates are earning much profit from their oil drilling and oil processing activities. Oil, like most commodities, is also very much affected by the law of supply and demand. The law of supply and demand is one of the primary and consistent processes which help predict the development of business and management. In its simplest terms, the law of supply and demand prescribes an inverse relationship, where, as one variable decreases, the other variable increases (Baumol and Blinder, 2007). In other words, if the supply of a certain commodity is low, then the demand becomes high, and vice versa. The prices of commodities are very much affected by this inverse relationship in the sense that, if the supply is low and the demand is high, the price for the commodity increases. In the reverse sense, if the supply is high and the demand is low, the price for the commodity decreases (Baumol and Blinder, 2007). In relation to oil prices, as the world supply for oil decreases and demand increases, the prices of oil increases; and as the world supply for oil increases and demand decreases, the prices of oil decreases. The fluctuation of oil supply is largely credited to the increasing demands of an increasing world population (Campoy and Russel, 2009). Furthermore, our oil mineral deposits are slowly being depleted; oil minerals are not something which can be manufactured or replaced once used. The next best thing for oil companies and prospectors to do would be to look for new sources of oil. However, this is only a temporary remedy to the oil shortage issue. If alternative sources of energy and fuel would not be found, the prices for oil would continue to rise and the supply for oil would continue to decrease. The price of gas as ruled by the law of supply and demand must be controlled and managed. The consumers have recognized the fact that they would not be able to afford the rising oil prices if they do not conserve their fuel consumption (Campoy and Russel, 2009). In this regard, consumers opted to cut back on their driving and save their fuel consumption for essential use only. As a result, gasoline was able to regain its supply gap and consequently push up the depressed oil prices (Campoy and Russel, 2009). Since the price of oil is very much dependent on the law of supply and demand, there is an element of managerial strategy which will always hover over the determination of oil prices. Such strategy may sometimes be attributed to the practice of hoarding or controlling the amount of oil released to the market. To some degree, this practice has been speculated by various analysts and scholars as the cause of oil price increase with oil companies seeking to gain the most profit from oil (Fessler, 2009). This speculation has not been proven; however, in understanding the law of supply and demand, this speculation has merit. In this February 2009 article, the authors set forth that from a lower demand of gasoline, its demand has steadily climbed. Consumers seem to be returning to their usual gasoline consumption prior to the world oil price hike which turned off many gasoline users (Campoy and Russel, 2009). In order to further boost this growing demand, the oil companies were keen on maintaining this production and increased their efforts towards increasing their gasoline output – adding some 16,000 barrels of oil a day from storage (Campoy and Russel, 2009). As a result, oil prices dropped and settled at a steady 39 dollars a barrel. The management of oil prices and oil supply is the province of the Organization of Petroleum and Exporting Countries. The OPEC is an organization of oil-producing countries and this organization has adopted different agreements in order to cut or increase supply of oil in order to regulate oil prices (OPEC, 2011). For the most part, this organization has been criticized by different countries because the organization seems to be unfavorably manipulating oil prices (Fernando, 2010). Other countries have lauded the organization for its attempts to equalize the oil prices in order to give all countries a chance to meet their oil demands at affordable prices. However, since the pace and advancement of the world economy is still largely dictated by developed and industrialized nations, the lesser developed countries are not significantly uplifted by the efforts of the OPEC to equalize oil prices (Fernando, 2010). In effect, the law of supply and demand is still the dominant phenomenon which would dictate oil prices. Since the bigger economic players have a stronger managerial impact on the oil prices, oil prices will remain subject to manipulation. In assessing the situation from the point of view of a manager, allowing the normal demand and supply process to occur without manipulation, fair and equitable prices can be set in behalf of the consumers. However for the manager seeking the most profit for his company, there can be an element of manipulation carried out. This manipulation can be with the supply or with the demand end. For instance, a manager can hold back supply in times when there is a need to set higher oil prices (Powell, 2008). Or in times when oil supply is abundant and there is a need to regulate supply, oil products can be held back in order to prevent flooding the market with excessive oil supply. Surplus in supplies can be unfavorable to the market because retailers would be prompted to dispose of the commodities immediately. In order to do this, they would have to decrease oil prices (Eicher, et.al., 2009). In applying strong managerial skills, managing oil prices in accordance with the law of supply and demand, has to be in line with ethical practices, as well as the actual state of our oil supply and demand (Cooper and Argyris, 1998). Manipulation of supply and demand is clearly an unethical managerial practice which does not serve the interests of the people, most especially the lesser developed nations. Moreover, these lesser developed nations are already very much dependent on world oil prices and the world economy. The world economy is in fact dictated by the developed nations, some of which are already oil-producing countries. As a manager, the actual state of oil supply and demand has to be used in order to dictate oil prices. The regulation of the OPEC has not served to protect the interests of all nations; in fact, the oil-producing nations remain to be the largest benefactors of the regulation measures of the OPEC. As a manager, the regulation of oil prices has to be set forth under the law of supply and demand because it is a natural process which can be sustained in the actual setting. Our dependence on oil has become extensive enough; however, our oil supply is continually being depleted. The rest of the world has to know the real state of affairs in terms of oil supply in order to ensure that the right decisions are being made to fill in the actual need. Works Cited Baumol, W. & Blinder, A. (2007) Microeconomics: Principles and Policy. California: Cengage Learning Campoy, A. & Gold, R. (2009) Gas Demand Edges Higher, Lifting Crude. Wall Street Journal. Retrieved 18 February 2011 from http://online.wsj.com/article/SB123508837588127981.html Cooper, C. & Argyris, C. (1998) The concise Blackwell encyclopedia of management. Massachusetts: John Wiley and Sons Eicher, T., Mutti J., & Turnovsky, M. (2009) International Economics. New York: Routledge Fernando, V. (2010) OPECs Manipulation Of Oil Prices Is Looking Like A Huge Success Right Now. Business Insider. Retrieved 18 February 2011 from http://www.businessinsider.com/this-makes-opecs-attempt-to-manipulate-oil-prices-look-like-a-huge-success-2010-9 Fessler, D. (2009) Crude Oil Prices: The Best Way To Play The Coming Oil Rebound. Daily Markets. Retrieved 18 February 2011 from http://www.dailymarkets.com/contributor/2009/04/23/crude-oil-prices-the-best-way-to-play-the-coming-oil-rebound/ Lefton, R. & Weiss, R. (2010) Oil Dependence Is a Dangerous Habit. American Progress. Retrieved 18 February 2011 from http://www.americanprogress.org/issues/2010/01/oil_imports_security.html Powell, B. (2008) Petroleum Prevarication. Exponential Improvement. Retrieved 18 February 2011 from http://www.exponentialimprovement.com/cms/petrolprevar.shtml Read More

CHECK THESE SAMPLES OF Managing Gas Prices and the Law of Supply and Demand

Gas Prices and the Law of Supply and Demand

This essay describes and analyzes the relationship between gas prices and the law of supply and demand, that were presented in the article of Ana Campoy and Russel Gold, entitled ‘Gas Demand Edges Higher, Lifting Crude' and discussed by the researcher.... In the article of Ana Campoy and Russel Gold, entitled ‘Gas Demand Edges Higher, Lifting Crude,' which the researcher analyzed in the essay, the relationship between gas prices and the law of supply and demand are established and discussed in details....
4 Pages (1000 words) Essay

The Zero Price Concept

In essence, the zero price effect can be considered a special instance in the law of demand.... However, people typically lose sight of the fact that if goods and services are always to be priced for zero, particularly at the point of delivery, demand will surpass supply and some form of administrative allocation or rationing will become unavoidable.... The essay "The Zero Price Concept" focuses on the critical, and multifaceted analysis of the major issues in the concept of the zero price, discussing its effects on demand and price, thereby demonstrating how price can allocate and ration resources....
8 Pages (2000 words) Essay

Economic Resources and Mother Nature

They are continually dynamic without any limits and influence the trends of market supply and demand chain configurations.... rices are agreed expressions of the value of products/services for exchange and every society that allows exchanges has prices.... Inter relation of individual prices results in the existence of a price system.... A variety of economic forces bind the prices to form a price structure....
4 Pages (1000 words) Essay

The factors restraining investment in the oil and gas industry

c (energy studies) at the center of energy mineral petroleum law and policy, cemplp, university of dundee.... Opportunity involved in finding commercial quantities of oil and gas, the intensive capital required for undertaking exploration and production result in significant business risks.... Although they are oil & gas reserves located in those countries; very few had sufficient financial resources for the upstream investments, especially for the development of oil & gas exploration and production....
16 Pages (4000 words) Dissertation

How Will a World Recession Affect Oil and Gas Investment Supply and Demand by Andrew Gould

The author of this article "How Will a World Recession Affect Oil and Gas Investment supply and demand by Andrew Gould" comments on the effects of the recession on the oil and gas industry in the United Kingdom and the measures and the strategies that should be put in place to avert these effects.... Conservation and fuel substitution efforts in the OECD are expected to take longer in implementation and hence may suffer the law of diminishing returns if the oil and gas prices remain low....
6 Pages (1500 words) Article

Lowering Gas and Oil Prices Will Assist in Stimulating the Economy

Thus, we are faced with the prospect of declining reserves and increasing demand.... "Lowering Gas and Oil prices Will Assist in Stimulating the Economy" paper examines in detail the reasons for this process.... They start from disincentives to production caused by the fall in oil prices to the amount of investment that is needed for exploration, extraction, and transportation.... Given the deep linkages that exist between these stages of the production cycle, this paper argues that higher oil prices may not be a bad thing after all....
6 Pages (1500 words) Coursework

Factors Affecting the Fall of Oil Price

It is notable that 2014 indeed proved to be a momentous year for the oil industry and related markets as prices and the pricing factor continued to spark interesting rates of purchase (Nicolli, Johnstone & Söderholm, p 263, 2014).... Energy markets remain most competitive and yet crucial as investors continue pouring their millions of dollars to reap from the forgoing demand and supply of the very precious energy commodity.... Energy markets remain most competitive and yet crucial as investors continue pouring their millions of dollars to reap from the forgoing demand and supply of the very precious energy commodity....
12 Pages (3000 words)

Evaluation of Demand Management in Australia

The paper "Evaluation of demand Management in Australia" discusses that despite the lack of comprehensive nation-wide reporting on demand management, there exists some evidence showing miniature progress of network businesses related to demand management.... Whilst demand management may be incurred within the regulatory period, then there is an expectation that deferred capital expenditure would be incurred in the subsequent regulatory period....
13 Pages (3250 words) Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us