Assignment on how will a world recession affect oil and gas investment supply and demand by andrew gould. Needs to be plagiarism free! Enough supplies together with low production costs and low tax had slowly raised the demand without much concern of the production costs. The Organisation of Petroleum Exporting Countries raised the production rent that led to the need of curbing demand. The conservation and substation, together with recession led to the drop in demand by 8 million barrels per day. Introduction of other sources of fuel such as nuclear energy, higher taxes, and other incentives contributed to the low demand.
The oil and natural gas prices have recently increased due to the high demand that has cropped up as a result of growth in major world economies. However, the increase in prices had a direct effect on consumer behavior even before the recession. 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. In the 1980s the demand dropped by million barrels per day, however, it is projected that the demand was to decrease by 2.3 million barrels per day in 2009.
In the 1970s, there was no shortage of oil in the market, meaning that the supply surpassed the demand. The price increments were driven by the changes in the producer’s attitudes to the share of the rent and the supply base. The prices were made high enough to maintain the development costs. The current consumption of oil is about 85 million barrels per day. The excess production capacity has reached about 8 million barrels per day, which is 8% of the total demand. The increase in demand made the supply more fragile, and this is true because from 1986 to 2004, there has been a very low investment in new supplies. However, the high demand in 2004, led to the increasing of the prices. After 2004, the increase in supply came mainly from Saudi Arabia due to increased capital spending in exploration and production.