1. Producer Surplus and the Oil Industry
Faith Grigg

2. 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

3. 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)

4. 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)

5. 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)