Oil and Gas Supply Shifters

http://www.nytimes.com/2016/12/05/business/energy-environment/oil-and-gas-industry-takes-stakes-in-mexican-offshore-fields.html?ref=energy-environment

In this article, international companies such as Total of France and Exxon Mobil and Chevron of France expect the price of oil and natural gas to rebound and increase in the future. A little more than two years ago, a barrel of oil cost more than a $100. Today a barrel of oil costs a little over $50. As a result of this decrease in price, companies today are spending far less on exploration and oil production as high-cost, deepwater projects are too costly to drill from.  But as prices are expected to increase in the future, current sales of the oil supply will be postponed in order to take advantage of the high future oil prices. As the article explains, companies are paying the Mexican government billons of dollars for the rights to drill oil on their lands but actual exploration and production of oil in the deepwater fields will “not produce a significant amount of oil for at least a decade.” The expectation of higher sale prices in the future and postponment of the production of oil shifts the current oil supply curve up and to the left.

2 Comments »

  1. ramireza Said,

    December 9, 2016 @ 12:27 am

    In reading your article I can clearly see why you would be able to connect this to the concept of supply and demand, but i also feel like you could compare your article to the concept of opportunity cost seeing that the articles claims the Mexican fields won’t produce a significant amount for at least ten years.

  2. ramireza Said,

    December 9, 2016 @ 12:32 am

    In reading your article I can clearly see why you would be able to connect this to the concept of supply and demand, but I also feel like you could compare your article to the concept of opportunity cost seeing that the articles claims the Mexican fields won’t produce a significant amount of oil for at least ten years.

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