oil companies lower prices in response to decreased oil demand
Well, yes, but no. In oil, it IS meaningfully different than other products like VHS. I’m glad you took macroeconomics 101 but this is different.
OPEC can cut production to meet demand and maintain a stable price at any time. They don’t need to “lower prices to increase demand”. EVs have NO impact on the cost of fuel at the moment. There aren’t enough EVs and the demand for fuel far outweighs the savings.
Several OPEC+ countries agreed to voluntarily cut oil production by a total of 2.2 million barrels per day in the first quarter of 202
So don’t expect the price to stay low or get lower. They fluctuate which is normal but not due to EVs as the top poster assumed. Demand went down and price dropped. It’ll go back up end of February.
When COVID hit and demand dropped DRASTICALLY the prices plunged (shipping stopped, cars stopped, oil production didn’t stop in time). But that was an exceptional situation. OPEC doesn’t want barrel prices to drop.
This illustrates exactly why we make fun people who bleat about demand curve graphs from their econ 101 classes. Yes, this all works for commodities and zero barriers to entry in the market and perfect information and no collusion and no subsidies and no externalities and free of transaction costs. Take out just one of those assumptions for a given market and now you have the basis for a masters thesis.
Well, yes, but no. In oil, it IS meaningfully different than other products like VHS. I’m glad you took macroeconomics 101 but this is different.
OPEC can cut production to meet demand and maintain a stable price at any time. They don’t need to “lower prices to increase demand”. EVs have NO impact on the cost of fuel at the moment. There aren’t enough EVs and the demand for fuel far outweighs the savings.
Several OPEC+ countries agreed to voluntarily cut oil production by a total of 2.2 million barrels per day in the first quarter of 202
So don’t expect the price to stay low or get lower. They fluctuate which is normal but not due to EVs as the top poster assumed. Demand went down and price dropped. It’ll go back up end of February.
When COVID hit and demand dropped DRASTICALLY the prices plunged (shipping stopped, cars stopped, oil production didn’t stop in time). But that was an exceptional situation. OPEC doesn’t want barrel prices to drop.
This illustrates exactly why we make fun people who bleat about demand curve graphs from their econ 101 classes. Yes, this all works for commodities and zero barriers to entry in the market and perfect information and no collusion and no subsidies and no externalities and free of transaction costs. Take out just one of those assumptions for a given market and now you have the basis for a masters thesis.