1. What is the structure of the world oil market?
2. Use demand & supply diagrams to explain how the price of oil is
determined in the world market?
3. Explain why demand & supply might be inelasic in the short run but
not in the long run?
4. What do you think are the main factors influencing oil prices in
the current period?
5. What do you think will be the long term consequences of oil
becoming a scarce resource?

answer 5. We all stay home.

I talk to people about #3 alot, so I'll address that one.

There are a certain number of cars out there that people own.  Some
are gas guzzling SUV's or the like while others are gas thrifty
economy cars or even electric/gas hybrids and everywhere in between.
In the short run, if gas prices rise (even to the outrageous price of
say... $2/gallon) then people aren't going to immediately dispose of
their gas guzzlers.  They will keep their cars for a few years as they
had planned and then when it comes time to buy a new car they will
very likely find a more gas friendly model.

So in the long run if gas prices are really high then the demand for
gas will drop.
If you want to throw in an extra credit tidbit with your work, feel
free to advocate my belief (since 1996 when I saw the problem about to
occur) that the US government should raise gas tax 5 cents per year
for 30 years and state at the beginning what they are doing.  That
will very much encourage people in the US to consider how much gas
they want to waste, and will have the wasters paying more for roads
repairs and evironmental cleanup.

1. Oligarchy
2. D & S are pretty close to two vertical lines - who knows the D dropoff point
3. Demand - existing equipment and demand patterns
   Supply - existing tapped reserves
4. Hysteria and speculation - probably both artificial 
   - I doubt the 'spot' oil market is really significant
   - the industry is vertically integrated
5. a) more exploration
   b) research into /viable/ alternative sources of energy

You have a good question. A similar question was discussed in a grad
level econ class I took a few years ago. Basically the world oil
market is very efficient. Oil tankers owned by dozens of companies
circle the world and sell oil. All companies involved in oil
production and distribution are extremely competitive.

Supply is inelastic in the short run because products that use oil to
make them run (ex cars and airplanes) are expensive and people will
just pay the extra money if oil prices go up. In the long run the more
oil prices go up the more consumers stop using oil. Airline companies
will reduce the number of flights in order to make sure every seat is
filled; commuters will carpool more often and in more fuel-efficient
cars.

The main factors that affect the oil market today are global political
uncertainty and China, an oil hungry powerhouse.

My personal opinion is that high energy prices are going to stay with
us for some time but the US has a lot of inefficiency in its energy
use so we can make up for some if not all the increased price by
investing in new technology for electric generation and
transportation.  As the price of energy goes ever higher more and more
companies and individuals will try anything and everything to come up
with alternatives as the return on investment for creating energy
saving ideas will grow as oil prices go up (geo thermal, hydro
electric dams, coal, nuclear, biomass, ocean tidal dams, windmills,
electric cars)