Why a little cut in oil supply can have a big impact on price

Scott Tong May 15, 2017
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Why a little cut in oil supply can have a big impact on price

Scott Tong May 15, 2017
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Saudi Arabia and Russia announced plans to cut their amounts of oil going onto the market. That has suppressed oil prices. The two countries make up a significant part of the oil market, but not that much. So why can a minor cut in supply affect the price worldwide? Because the oil market has something its watchers call “inelasticity.” When the supermarket’s out of strawberries, you buy apples. But there’s no substitute for oil, for the gas that runs our cars. We need it, and only it, meaning there’s little wiggle room when less is available.

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