The price of oil in international markets has dropped stunningly 60% in the past twelve months. Among the factors mentioned behind this drastic fall is the millions of barrels of oil produced in the US called shale oil and analyze: a. The market struc ture for oil industry.
b. The supply and demand for oil in that market structure.
c. The pricing of oil at the presence of OPEC and the role of Speculators.
d. Why shale oil is a substitute for oil and explain the news in regard to the Cross elasticity of demand.

a. The market structure for oil industry.

The market structure is monopolistic competition: there are many competitors, that hold some market power, but not as much as in oligopoly. The good that is offered is not as homogenous as in agricultural markets, and this is the reason why it is not a perfect-competition structure either.

b. The supply and demand for oil in that market structure.

Supply and demand is determined more or less freely in the market. Producers hold some market power so they charge a price that is a bit higher than the marginal cost, which would be the price in a perfect competition structure.

Consumers also have power in the demand curve because they have a fair number of options.

c. The pricing of oil at the presence of OPEC and the role of Speculators.

The OPEC forms an oligopoly, however, not all countries that produce oil are members of the OPEC, and this is why the market structure as a whole is not an oligopoly, but monopolistic competition.

Speculators can drive prices, but their influence is marginal in comparison to consumers as a whole.

d. Why shale oil is a substitute for oil and explain the news in regard to the Cross elasticity of demand.

Shale oil is a substitute because it offers the same service: providing energy, and serving as a chemical component of many products.

As for the cross elasticity of demand, this means that when the price of oil increases, the demand for shale oil increases, because people flock to the substitute.

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