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What are two factors causing decrease in the supply of petrol?What two factors have...

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nyzaayob | Student, Undergraduate | eNotes Newbie

Posted October 25, 2009 at 3:41 PM via web

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What are two factors causing decrease in the supply of petrol?

What two factors have lead to the decrease in the supply of petrol?

Tagged with business, petrol, supply

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krishna-agrawala | College Teacher | Valedictorian

Posted October 25, 2009 at 5:10 PM (Answer #1)

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In economic terms supply of petrol refers to the quantity of petrol the suppliers are willing to supply. Before I  proceed to answer the question, I would like to clarify two points. One the supply of petrol is not the same as supply of crude oil (also called petroleum) that is used for manufacturing petrol. Though the supply of petrol is closely related to supply of crude oil it is not same. Crude oil is used for manufacturing many more products such as diesel and aviation fuel, in addition to petrol or gasoline. two, I am not sure if supply of petrol is decreasing worldwide or in a country like USA. The explanation given by me only explain the possible reasons that can lead to decrease in petrol supply. No claim is being made that such developments have actually taken place.

The supply of petrol could decrease because of the following reasons.

  • Increasing in cost of producing petrol. One major component of this cost is the price of crude oil, but it also includes the processing and distribution costs incurred by manufacturers.
  • Increase in taxes on sale of crude. This has the effect of increasing the price of the petrol to the customers without corresponding increase in revenues of the suppliers.
  • Reduction in consumer demand for petrol. Here the demand refers to the quantity of petrol consumers are willing to buy. The demand can reduce for several reasons like consumer using more fuel efficient cars, or using other means of transport, and reducing use of petrol by using more of alternative fuels like ethanol and diesel.

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kimfuji | College Teacher | (Level 1) Associate Educator

Posted October 25, 2009 at 4:11 PM (Answer #2)

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There are many factors. Some of these are:
1.There are many concerns about the Middle East: is it stable enough politically to assume that petro will be supplied regularly.

2.The Russians are cutting the supply of oil, to hurt the US economy, and at the same time helping their economy by keeping their own oil

3.There is competition from the Chinese, Indian, Japanese, Korean, and Brazilians since they are needing more petro.  They're making big deals with Venezuela and Sudan to get a bigger piece of the petro for themsleves.

4.The big oil companies are having problems uncovering more fields.

5. Companies are having problems getting money to fund looking for more oil. For example Cheetah Oil recently stated to Reuters that their funding sources are making it difficult for them to go ahead with their search for more oil reserves.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted October 25, 2009 at 11:43 PM (Answer #3)

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The second answer is much better than the first if you are asking this for an Economics class.

Two things I'd like to add:

1. At least in American terminology (I've never looked at a textbook from any other country, unfortunately) demand can NOT affect supply.  A change in supply is shown by movement of the supply curve on a graph and a change in demand does not change the supply curve.

2. However, one factor that affects supply is the expectations of producers.  If the oil companies believe that demand will stay low (and prices will also stay low), they will not invest so much in finding new sources of crude oil.  This will increase, as the second answer points out, the price of producing petrol

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