Chapter 2 - Supply and Demand

the article :http://www.canada.com/topics/news/story.html?id=fbbda0f0-d7a4-46f5-9725-26c667b5edff

Venezuela expects OPEC to cut supplies

Summary:

This article is regarding the supply and demand of oil. It discusses about how Opec, an organization that provides approximately one third of the world’s oil supply is expected to cut the amount of oil they bring in. The reason for this cut is to balance the supply and demand. Right now, the world economy is recessing which caused the demand of oil to decrease. Oil prices has also been affected due to this reason. Prices have plunged more than half from the price it was in July which was $ 150 a barrel. To maintain the oil revenues, the Venezuela's economy minister expects Opec to cut supplies. The Opec president has said it is likely to reduce about 1 million barrels per day from the quantity of oil they make available.

Connection:

The connection that I found between this article and the text is the concept of supply and demand. Fears of recession worldwide, has caused the demand of oil to decrease. The consumer’s income has declined due to this, so they don’t have extra money to spend on luxury items. When consumers don’t purchase a product as often and the suppliers keep producing at maximum rate it will cause the prices to drop. The prices only go up if there’s a high demand for and only a limited supply but oil demands are not high. Therefore to balance the supply and demand, Venezula’s economy minster is expecting Opec’s to cut their supplies. Cutting the amount of oil they provide will hopefully help maintain the oil price and prevent it from plunging even lower.

Reflection :

The housing crisis in the United States has caused the fears of worldwide recession. This effected the demand and supply of oil. Before the demand of oil was high and the oil providers were producing at maximum rate. This also caused the prices to increase. However, since there’s a worldwide recession, incomes of consumers has declined. This decline is causing demands of many items to decrease since people don’t have the extra money to spend. I think that it's a good idea that Opec is going to cut thier oil supply. If they keep producing more but no one is going to buy it, they're going to have a lot left. Hence, the price of oil would even go lower than now. I wonder if other companies and organization will try to balance supply and demand by reducing thier supplies.