International Trade Policy (ITP) on Dual Pricing involves the measures undertaken to determine a selling experience of the same fuel products at two different prices to varied consumers. In this view, consumers are faced with a choice of either buying fuel of low-quality subsidized type of fuel or high-quality unsubsidized fuel. At the end of the day though, consumers will tend to utilize subsidized fuel losing the meaning of dual-priced consumption (Mussatto et al., 2016). Oil and Gas industry is the industry in discussion, with its market structure carefully analyzed. The discussion of this paper will also base on the industry trend and microeconomic relationship, and the influence of the government on the market prices, output, and market structure.
According to NAICS, oil, and gas Extraction lies under Sector 21 under Mining, Quarrying, and Oil and Gas Extraction. Activities under this sector involve the exploration of crude petroleum and natural gas, emulsion breakers, drilling, completing, separator operations, and wells equipment to enable the preparation of oil and gas to the point of transportation.
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The industry market structure for oil and gas extraction offers a significant contribution to the American economy. The nature of this commodity is characterized by a dramatic demand for the product quadrupling the price, as well as its shortage nature, which offers a unique factor in determining the price of the commodity in the market. The markets of the oil industry are shifting from being influenced by some cartels to a significant organized market force determined by the future markets (Belyi, 2016). However, over a four-decade period, economists have presented a variety of models that determine the price of oils. Spence (2017) identifies a significant concept to determine the effect of market structure on oil prices. According to him, he noted that the initial industry situation involved too much supply for oil as opposed to demand, hence there was a need to control the production of the commodity to attain stability of the market. This required some form of control that resulted in cartels (Yacobucci, 2014).
Notable micro-economic relationship, market outcomes, and trends in the Oil and Gas Extraction sector have played a huge role in determining the price dynamics of the global oil industry. The significant growth in populations between 2010 and 2025 is a major shift in affecting the demand for oil and liquid hydrocarbons that will continue to rise steadily. This is particularly influenced by the growth of population in the developing nations such as Africa and India, who will hit a record population increase due to the socio-economic improvements that are being experienced in the regions. Additionally, because of the population increase, there is an approximate increase in the rise of car fleets, with a projected 670 million by 2025 (Belyi, 2016). However, measures are currently undertaken to enhance sustainable oil consumption practices that involve the quality of engine fuel getting better, and the designs of the general bodies of the cars, which improve on fuel efficiency. Most significant is the trend of technology use especially in the US where horizontal drilling and hydraulics have resulted in the profitability of a significant amount of unconventional hydrocarbon reserves. Somehow, this has resulted in decreased average US oil prices (Mussatto et al., 2016). Figure 1 below shows the production trend of Oil in the US over five years. There is a general trend of increase in oil production as illustrated by the graph.
Figure 1: Production trend of Oil and Gas in the US adopted from ( Spence 2016 )
The US plays a significant role in the world oil market in terms of the policies and issues affecting the industry since it is both the largest producer and consumer of the commodity. There has been a significant increase in the US oil production levels due to the advancement in technology and critical support issues. The enactment of the Energy Policy and Conservation Act of 1975, responded well to rapid price increases of oil and perceived scarcity of the commodity, which ended up restricting US crude oil exports (Yacobucci, 2014). It is therefore crucial that sometimes the federal government comes into play to stabilize and balance the ever-volatile market for oil and gas.
References
Belyi, A. V. (2016). EU external energy policies: A paradox of integration. In Europe's Global Role (pp. 219-232). Routledge.
Mussatto, S. I., Dragone, G., Guimarães, P. M., Silva, J. P. A., Carneiro, L. M., Roberto, I. C., ... & Teixeira, J. A. (2016). Technological trends, global market, and challenges of bio-ethanol production. Biotechnology Advances , 28 (6), 817-830.
Spence, D. B. (2017). Corporate social responsibility in the oil and gas industry: The importance of reputational risk. Chi.-Kent L. Rev. , 86 , 59.
Yacobucci, B. D. (2014, September). Energy Policy: 113th Congress Issues. Library of Congress, Congressional Research Service.
