In early 2017, an article in the Financial Times about the oil
market quoted the chief economist of oil company BP as
saying, “Pricing pressure is likely to come from the supply side, because of strong growth in US shale oil (crude
oil found within shale formations), and the demand side
as the rise of renewable energy, including electric vehicles,
gradually slows growth in oil consumption.” After reading this article, a student argues: “From this information,
we would expect that the price of oil will fall, but we
don’t know whether the equilibrium quantity of oil will
increase or decrease.” Is the student’s analysis correct?
Illustrate your answer with a demand and supply graph.
Source: Andrew Ward, “BP Warns of Price Pressures from LongTerm Oil Glut,” Financial Times, January 25, 2017.