The focus of this question is on the market for oil globally.

During the first half of 2022, the following two shocks occurred.

i. Global economic activities continued a strong and sustained recovery from previous COVID-19 lockdowns. Sectors such as manufacturing and international travel boasted rapid growth. These sectors rely heavily on oil and fuel as inputs.

ii. The global oil market descended into a turmoil in early 2022 due to the Russia - Ukraine war. Russia was the second biggest exporter of crude oil. Following its invasion of Ukraine, the Russian oil was boycotted in international markets by the US and the EU.

a) Considering the two shocks above, determine how the demand and supply of oil in the global market would change. Clearly explain why such change(s) would occur. Point out the relevant determinant(s) that affect the demand and supply of oil in the global market.

b) Clearly explain how the demand curve and the supply curve will shift as the result of the shocks above.

c) Clearly explain how the equilibrium price and quantity of oil would change as a result.

d) With the global economy on the brink of a nasty energy crisis, Western countries have urged OPEC countries, an organisation representing major oil exporting countries, to urgently ramp up production. However, OPEC members have only slowly ratcheted up their output. Their daily production in August 2022 remained below pre-COVID-19 levels. Why do you think OPEC countries have not raised their output faster? Clearly explain.