Economics of Oil

Definition of the problem

The consumption of oil has been exceeding the amount of that being produced. Each day, there are millions of barrels produced, but this seems not to satisfy the needs of consumers. It is always rare to exhibit some oil occurring as surplus because there is equal consumption rate to the production rate. Further, the existing problem in oil economics is that the producers also have little inventory space for producing oil in excess. The producers and the economist have found no other way of meeting the need to increase the amount of oil produced. Consequently, this cannot match the evergrowing demand for oil in the market (Taiebnia & Gity, 20). There are also expectations of increase in the consumer demand while the oil supply remains constant (or even deteriorating). There is no need for redefinition of this problem since its solution lies with the economist. It is all about deep understanding about supply and demand of which the economist has not been able to implement. The economist has always reasoned that it is excessive demand to supply is always the source of all the oil economic problems. However, this is a misunderstanding because there is no occasion that demand will over weigh supply. This arises because there is never a gap for supply except the existence of market clearance price (Jovinelly, 65).

The problem about the diminishing supply in relation to demand affects mostly the consumer countries while the producer countries are enjoying the excess demand for their products. The consumer countries would have to strain in order to get the meager produce, which does not fit their consumption rate. This has always led to the shortage of oil product in most of the developing nations like Kenya. The shortage, in turn leads to increase in prices of the oil products making the consumers in those countries to shy away from buying those products. The study of oil economics is necessary for everyone aspiring to see that there is the development in his or her countries. Oil products are necessary goods for every country, especially in propelling economic development hence a shortage in supply will affect the development of a country. Their use is inevitable in the industries making the need for a solution to be alarming. Therefore, an individual aspiring for a solution to the oil economic problem should study the affected in order to realize the magnitude of said the shortage in supply.

The solution of the problem is inevitable for everyone in the society because oil forms a critical part of development in a  country. There are expectations of increase in the demand of oil in the near future implying that the problem would continue to take toll. This requires an urgent solution if a country is to maintain its economic development. The problem has always led to the energy crisis thereby hindering most of the development process in such countries. Most countries use oil as the source of energy making those countries to witness increase in fuel prices in the event of the problem. Unless there is a solution to this problem, the most of the countries will witness reduction in their production processes (Torres et al, 120).

Solution to the problem

The solution to the problem lies in embracing other forms of energy that do not relate to the oil products. The general benefits of embracing other forms of energy include supporting economic development because of the increased sources of energy. This will help the country to produce more form of energy that would meet the development in various countries. Embracing other forms of energy will make the involved country continue its development programs because of the reduced reliance on one form of energy products. The specific benefits include making the supply-demand curve for oil be elastic to ensure that there is increase supply in the market. The benefits of relying on other forms of energy will help a country in avoiding the problems related to oil supplies. This will occur since whenever the suppliers increase the prices of oil, the consumers would be having alternative (Jovinelly, 65). It will force the suppliers to find ways of reducing the oil prices because the consumers have diversified their demand.

Firstly, I would need to identify other forms of energy that can help in substituting the oil products. This is a critical step since there will be a need for convincing the public that they are the proper solution. Secondly, I would need to carry out awareness campaigns to inform on the need for less reliance on the oil products. I would teach people on the importance embracing other forms of energy towards reducing the economic problem related to the oil products.

Other objections and alternatives

I considered proposing for consumers to shun the use of oil, but I had to abort this view because of the opinion I read in books. This consideration would be less effective because, in the first instance, the consumers do not consider preferable alternative. The consumers have always considered oil products as the only solution to their energy problems, not considering that other forms could also work the same for instance water. Consequently, I would first have to convince them on the presence of other forms that could substitute oil products that are when they can shun the use of oil products. Further, I also considered for the further increase in oil prices in order to reduce the demand for the oil products. This could have been less effective because of the nature of the supply-demand curve for oil. The curve is the inelastic meaning that any deviation in prices will bring no change in the demand of the consumers.

Most people feel that oil is the ultimate source of energy, and there is no way a country can embrace development without oil. This opinion is not valid because the use solar, water and nuclear have always proved to work the same as oil in many regions across the world. For instance, the USA has embraced the use of nuclear power that has led to reduction in the energy crisis. Some people may also feel that there is no way to reverse the inelastic nature of the demand curve related to oil production. There is only existence of the prices at which the market clears; hence, any increase in the prices of oil will only make the consumers reduce their energy consumption.  Consequently, the opinion about the inelasticity of the demand curve is not valid because the presence of other sources of energy will diverse the taste of the consumers. This implies that the increase in prices of oil will only lead to the destruction of the competitors (Taiebnia & Gity, 20).

Conclusion

There is a need for embracing other forms of energy in order to reduce the oil economic problems. The problems mainly arise because of the feeling that oil is the ultimate source of energy thereby increasing demand for the product. The opinion about a country only being able to use oil  products as a source of energy is not valid, because many nations have successfully utilize other sources of energy. Embracing other forms of energy, like nuclear and solar will make the demand curve be elastic. This allows for the increase or decrease in demand whenever there is change in the prices of oil products. Apart from reducing the effect it has on the demand curve, diversification on the use of other sources of energy will also compliment on the economic development of countries. The countries will have increased the energy sources for their industries. Considering this solution, there would be no problem related to consumption of oil exceeding its production

Work cited

Jovinelly, Joann. Oil: The Economics of Fuel. New York: Rosen Pub, 2008. Print.

Taiebnia, Ali, and Gity Shakeri. “The Impact Of Oil Price Rise On Industrial Production.”  Iranian Economic Review 16.31 (2012): 13-31. EconLit with Full Text. Web. 4 Nov. 2012.

Torres, Nuno, Oscar Afonso, and Isabel Soares. “Oil Abundance And Economic Growth–A    Panel Data Analysis.” Energy Journal 33.2 (2012): 119-148. EconLit with Full Text. Web. 4 Nov. 2012.