Tuesday, October 04, 2005

Demand or Supply

The oil crises of the 70’s and 80’s had disrupted economies as political conflicts in the Middle-East created supply shortages. This led to a recession in the U.S., but the recent oil situation differs to that of the 70’s and 80’s. Economists credit the lofty oil prices to increasing demand for oil consumption. A demand driven event seems more maintainable then oil price concerns caused by a supply shock. This is because expanding economies support demand driven oil price hikes.

However, our economy may feel the pain of Katrina and Rita’s one-two punch. BP estimates these two devastating storms will cost the company approximately $700 million. This story can be obtained in this link. Increased demand may have helped BP achieve record first-half profits, but one should wonder how the recent supply issues will impact the economy as a whole. Greenspan has mentioned how our nimble and flexible economy has been able to absorb some negative influences. Then again, how many bullets do you think we can dodge?


Post a Comment

<< Home