Business, Letters & Opinion

The Reality Of Supply And Demand

By Michael Chastanet
By Michael Chastanet

As the price of oil dips to an unprecedented level of 30% and maybe more, it brings to my attention what transpired in 1974 when OPEC took the unilateral decision to increase the price of oil tenfold.

How could I ever forget this date, as I sat at my no-frills office in San Juan,Puerto Rico amidst my shipping expedition period? I was confronted with a tenfold increase on one of the most essential equations i.e. fuel for my ships, while corresponding freight rates were not factored in. This was in fact a most turbulent period for investors who relied so heavily on fuel for their operations. It took several months to stabilise this sudden increase but measures were finally implemented and without a doubt, it was the year 1974 which elevated and glorified the world INFLATION.

Forty years to date (1974-2014), the value of money became questionable and in my view this scenario remains the same at this time. It is, however, interesting to witness how the situation has partially reversed itself, whereby, prices appear on a downward trend. Some analysts are even predicting a $50 per barrel cost may be in the making. Though many consumers remain joyful over the turn of these events, many producers who rely mainly on oil revenues are in for a very rude awakening.

The motto of this story is threefold (Supply and Demand), (Nothing lasts forever), (Never keep all your eggs in one basket). This having been said, the repercussions on states like Venezuela, Russia, Nigeria, Iran, Iraq, Libya and others could bring about serious and negative social issues within the world causing individuals to act irresponsibly to maintain their former lavish lifestyles.

How many of us are aware that the cost of oil per barrel ranges from US$80-$130.00 depending on the social benefits tagged onto oil revenues to keep their citizens happy. Saudi Arabia, Kuwait and Qatar for instance dish out thousands of dollars to their citizens for doing very little while foreigners are imported to carry out much of their construction and other menial works, whereas, places like Singapore, India, China and Japan are living examples of discipline. These unfortunately are the festering complexities of hand-outs which we need to avoid under all circumstances.

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