BE Oil Case

Please read the assigned case carefully and think about the following ques7ons. Please bring a
short case solu7on to the final class (6/10 or 6/11, depending on your sec7on). Maximum of 5
pages are allowed, but it has to be self-contained. Note that this case discussion session is going
to be driven by all of you. I will randomly pick a student to present his/her work for each
ques7on. My role will be limited to a moderator.

1. Futures markets imply that the oil price is expected to be $50 in July 2015. If Bell agrees
with this predic7on, how many wells will Bell drill? If Bell thinks the oil price will be $60,
how many wells should he drill? If he expects $70? What is Bell’s supply curve?

2. Prepare to explain how you would derive the aggregate oil supply curve from the supply
curves of individual producers like Bell.
(Hint) How would the supply curve of a generic firm that has mul7ple projects with
different costs (like Bell)?

3. If demand for oil in 2015 is Q = 750-15P and the supply curve is Q = -250+10P
(thousands of barrels), then what will be the equilibrium price (in dollars per barrel)?
How many of Bell’s project will be profitable?

4. Bell expects that China and India will use less oil next year for large infrastructure
investment projects. How might this affect the market price for oil? How would this
change be reflected in the market supply and/or demand curves?