What Are Petroleum Products, And What Is Petroleum Used For?

One of the most traded commodities in the world today is petroleum. What happens in the petroleum market affects many people’s lives because of the commodity’s such wide range of uses after it is refined. Some of the more well-known uses for petroleum products are as energy; “It is the most important source of energy, accounting for some 40.6 percent of primary energy consumption” (Cooper). However, those products are also used to make plastics and many other materials and chemical products. Many everyday products people use have oil somewhere in the process of their production. ("What Are Petroleum Products, and What Is

Petroleum Used For?")

For people to be able to use petroleum, it must first be drilled. Countries who can drill for it and

Recently, the members of OPEC have reached an agreement to potentially cut production of petroleum to about 32.5 to 33 million barrels of oil per day from 33.4 million, and

In 2014, oil was over $100 a barrel, and then dropped to about $30 a barrel this January. In the past few months, oil has been about $47 a barrel. With a cut in production, prices are driven up because the demand for the product is highly price-inelastic. (“OPEC Agrees to Cut Production; Oil Prices Surge”)

Price elasticity of demand is the measure of how responsive the demand for the product is when the price of the product changes. A price elasticity with the magnitude of one would mean the demand and price would change by the same magnitude percent. A price elasticity between magnitude 1 and 0 would mean the good is relatively inelastic. For oil, it is estimated “short-run elasticities suggest that oil demand is highly price-inelastic” (Cooper). Many of the twenty-three countries studied by Cooper had a short-run price elasticity between -0.01 and 0. This means that if the price of oil were to go up by a certain percent, the quantity demanded would only decrease

Nguyen 3 by under 0.1 of that certain percent. This shows that consumers of petroleum still need it and do not have many close substitutes at the moment, so they will need to buy it at the higher price.

When OPEC looks to make cuts and increase prices, an incentive they may really have