Oil Price Supply and Demand Summative

Scenario:
Imagine that you are an economist working in the cabinet of the Peruvian president. Recently, a
team of government geologist were conducting offshore oil exploration research and have
discovered a massive new deposit of oil. It lies deep under the Humboldt current at a depth of
1200m and is made up of 'sour' crude; meaning it is very expensive to both pump and refine.
The president sees this as a potential taxable resource which could cause the Peruvian
economy to grow. She has asked you to analyse the current market around oil in order to
recommend what steps should be taken ​immediately​ in regards to the newly discovered oil.

Task:
Your task is to read the following ​documents​ about the global oil market to formulate your
recommendation. You may draw from as many of the documents as you choose. Of course,
your recommendation has huge implications for the country and needs to be deeply rooted in
economic facts, figures and trends. The president is a busy individual, and she wants your
report to be concise; you may not exceed a 400 word count. Finally, the president wants an
organized report, with clear topics to each paragraph, which acknowledges sources, and is in a
clear and professional format. Use lots of evidence from the articles to support your answers.

WORD BANK
supply exports investment
demand imports commodity
revenue mechanization
marketing profits stability
environment expenditures consumers
prices subsidies elasticity
land labor capital

Assessment: ​This is an assessment of your Knowing and Understanding of commodities,

supply and demand and markets. We will use the following rubric to assess your work​:
Achievement Descriptors
Level

0 You do not meet any of the descriptors below.

1-2 You have produced a report that ​does not show a clear​ opinion. Your report shows a ​sparse and
irrelevant​ selection of data and figures. Your report shows a ​little​ understanding of supply and
demand economics.

3-4 You have produced a report that show a ​weakly informed​ opinion on the steps the President should
 take. Your report shows a ​satisfactory ​selection of data and figures. Your report shows a ​basic
understanding of supply and demand economics.

5-6 You have produced a report that shows an ​informed​ opinion on the steps the President should take.
Your report shows a ​detailed and relevan​t selection of data and figures. Your report shows a ​good
understanding of supply and demand economics.

7-​8 You have produced a report that shows a ​detailed and​ ​informed​ opinion on the steps the President
should take. Your report shows a ​thorough, detailed, current and relevant​ selection of data and
figures. Your report shows a ​complete and expert​ understanding of supply and demand
economics.

Greetings to the Peruvian president,

It has come to my concern that a new deposit of oil has been found deep under the
Humboldt current near Peru. You mentioned that this deposit could be a potential taxable
resource. I, however, do not agree with you.

It is a well-known fact that the oil industry has been in a slump these last couple of years;
oil price has decreased by nearly 50%. Companies have gone bankrupt in the United States,
and petroleum wells currently remain unprofitable.

This has happened because of the increased production of oil. Due to the demand not being
able to meet the supply, prices have been plunging down, and many states in the United
States, such as Alaska and Texas have even been facing economic challenges due to the
drop in prices.

However, economists predict that oil prices might return to its usual price ($90~100 each
barrel) in years. It has also been said that the demand in some countries have begun to
increase once again, which might stabilize the oil economy.

Based on these facts, I have concluded that the Peruvian government should keep the oil in
stock and wait a couple more years before pumping it or selling it. Peru should dig the oil
up in the future and sell it in the future as well.

The Saudi Arabian businessman claimed that oil prices will never hit $100 anymore.
However, this also means that if oil prices start to stabilize once again, they might not hit
$100, but will at least go up more than the $50 nowadays.

There is the problem with the sustainable energies taking over the energy market, but it
will take a long time for humans to completely stop relying on petroleum before
transferring into using environment-friendly energies. Once the problem with the
oversupply of oil gets resolved, prices will start to go up, at least more than now. It would
profit Peru the best to sell it then, when we are not quite ready to use the sustainable
energies and still need oil, but when there is an undersupply of oil.
We do not want to pump the oil right now and be economically challenged, like Alaska or
Texas.

The problem of a neighboring country getting ahold of the oil deposit should not concern
you at the moment, as it would be unprofitable for them to pump the petroleum these days
anyways.

I hope this letter finds you well,

Jae Hee Kim

(Word count: 398)

*Word count does not include greetings and farewells