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Market Equilibrium as it relates to oil and gas industry
Economically, market equilibrium is a state where the supply in the market is equal to the demand. The equilibrium is attained when the quantity demanded equals the quantity supplied leading to an equilibrium price. Equilibrium price refers to the price of goods and services supplied equal to the demand of goods and services in the market. Equilibrium price can only change when an external factor changes the supply or demand resulting in a disruption of the equilibrium in the market (Cheng et al., 2016). When the market price is above the equilibrium value, there is more supply than demand (surplus), and if the market price is below the equilibrium value, then there is more demand than supply (supply shortage).
The market equilibrium in the oil and gas industry has been affected by various factors in the market. For instance, The wall street journal reports describe Stiff competition from green energy/ renewable sources of energy, government policies, environmental factors, and customer preferences as some of the factors affecting market equilibrium in the oil and gas industry (Eaton et al., 2021). Green energy has gained adequate financial support from governments, thus growing faster than the oil and gas companies. The support can be attributed to the claim that green energy is environmentally friendly compared to oil and gas energy which has resulted in environmental pollution and climate change. The Covid-19 pandemic has also disrupted the equilibrium when lockdowns limited traveling, and other vehicle users shift from fuel energy to using electric-powered vehicles leading to low demand for oil.
The recent changes in the oil and gas market have therefore affected the market equilibrium. The demand for oil and gas energy has decreased, thus possible changes of lowering the prices to overcome the forces of competition in the market and attract more customers in an attempt to restore the market equilibrium state.
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