Producer Surplus and the Oil Industry Faith Grigg

Article Summary On 31 August futures for West Texas Intermediate (WTI) Crude Oil futures dropped 3.0% by market close 30 Aug price  $46.61 31 Aug price  $44.80 Earlier on 31 August it was reported that Crude Oil Inventories for WTI had a surplus of 2.3 million barrels The expected surplus was 1.1 million barrels for the 31 August report The extra 1.2 million barrels was additional unexpected quantity for the market

What Happened? S $2.3 Million Producer Surplus There was a larger than expected surplus of U.S. oil Using the information in the article we can see that the price for the market close on 30 August was $46.61 per barrel and that led to a producer’s surplus of 2.3 million. [According to the same source the approximate amount of oil futures traded was 1.0 million barrels] S Price (in dollars per barrel) $2.3 Million Producer Surplus $42.01 = Supply Choke Point Quantity of Oil Sold (in Millions of Barrels)

Which led to a 3% drop in price The reported larger surplus (increase in quantity available) led to a shift in the supply curve to the right D $46.61 Price (in dollars per barrel) $44.52 Quantity of Oil Sold (in Millions of Barrels)

Expectations As would be expected the drop in price led to an increase in the quantity sold 30 Aug futures sold  1.0 million 31 Aug futures sold  1.1 million Calculating the two producer’s surplus actually had a rise in producer surplus as well – would expect it to fall over time 30 Aug final price producer surplus 2.3 million 31 Aug final price producer surplus  2.3 million Prices will continue to shift until the market reaches equilibrium . . . until there is another shock (Tropical Storm Hermine)