OPEC And Russia Agree On Record Oil Output Cut

After an all-out price war between the OPEC (Organisation of Petroleum Exporting Countries) and Russia, the world’s biggest oil producers, Brent futures plummeted to as low as US$20 per barrel, the worst fall since the 2008 global financial crisis. Saudi Arabia, the leader and biggest oil producing country of the OPEC, entered into an alliance with Russia to cooperate in oil production in 2016. The break-up of their alliance resulted in the significant increase in production in both countries, sending oil prices to plunge in the past few weeks. To understand more about the history and functions of the OPEC, you may sign up for economics tuition Singapore with a reputable economics tutor Singapore. Economics Cafe Learning Centre is the best economics tuition centre in Singapore. Founded by its principal economics tutor Singapore Mr Edmund Quek, the economics tuition centre is located within five minutes’ walk from the Bishan MRT Station.

Contributors To The Price Fall

The contributors to the significant price fall can be categorised into demand factors and supply factors. In the 2008 financial crisis, the fall in oil price was primarily due to demand factors. Consumers, who received less disposable income due to the deteriorating economic conditions spent less on petrol, resulting in the decrease in demand and drop in oil prices. The demand factors and supply factors are covered in Mr Edmund Quek’s economics tuition Singapore. In view of the current Covid-19 situation, the economics tutor Singapore has been conducting his economics tuition classes online to avoid disruption to students’ learning during this trying period.

This time round, the fall in price has been more severe as compared with the 2008 financial crisis as it is a result of both demand and supply factors. On the one hand, the coronavirus has led to lockdowns of many economies of the world, including China, the United States of America, the United Kingdom as well as many other European countries. The lockdowns have caused inevitable, severe disruptions to the economic activities around the world. As result, the world has plunged into a recession and many people have lost their jobs. With guidance from your economics tutor Singapore in your economics tuition Singapore class, explain the economic implications of the lockdowns. In the United States alone, over 22 million American workers have applied for unemployment claims in the past four weeks, wiping out the employment gains in the past decade. You may consult your economics tutor Singapore in economics tuition Singapore about the unemployment claims in the country. Loss of income will lead to a decrease in demand. On the other hand, the price war between the OPEC and Russia has led to a surge in supply. Surging supply combining with falling demand caused the oil prices to drop to its historical low.

Historic Deal To Cut Output

Following a month-long tug of war, the OPEC and Russia finally agreed to cut oil production by close to 10 million barrels per day. This output cut will be implemented from May 2020. The end of price war led to optimism in the oil trading markets, with oil prices surging as much as eight per cent. You may discuss with your economics tutor Singapore in your economics tuition class the effectiveness of this output cut.

The historic deal between OPEC and Russia has prompted other oil producers to follow suit. The United States of America, Brazil and Canada have also pledged to reduce their oil production by 3.7 million barrels per day. This is in addition to the 1.3 million barrels output cut by other G20 countries.

Despite the historic deal between the OPEC and Russia to cut output, experts caution that the deal may not be sufficient to stabilise the oil prices. Based on their estimate, the fall in demand could be as much as 35 million barrels per day, far more than the reduction in oil production.

Linda Geng

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