Monday, February 18, 2008

Market Equilibrium: Future Supply Cuts Increase Today's Oil Price

From CNN.COM:
Oil prices rose slightly Monday, gaining after further hints that OPEC may cut production if global supplies continue to rise.
So consumers expect that in the future there will be a supply shift to the left. Why then did prices rise today? Work it out yourself, then compare your answer to the one I provide in the comments.

1 comment:

Justin M Ross said...

If in the future, supply shifts to the left, then prices will rise at that time. This translates into an increase in the expected future price of oil, which is a Demand shift to the right. This causes both prices to rise and output to increase as well.