OPEC+ comes together to fix oil prices

The Organisation of Petroleum Exporting Countries(OPEC) along with other major oil producers such as Russia and the United States decided to reduce the global oil supply. The decision came due to the coronavirus reducing demand for oil worldwide, leading to a fall in oil prices. However the OPEC+ decided to cut the oil supply by around 9.7 million barrels per day(bpd) which is about 10% of the global oil supply. The consumption of oil has been said to be reduced by 30% globally.

The reduction in oil supply was taken in order to maintain the profits. The cut in supply will lead to a fall in employment levels since workers will be made redundant. These workers will lose their main source of income and hence will not be able to demand other consumer goods, hence the aggregate demand in the economy will be reduced and the GDP may also fall. Since a lot of the revenue for oil dependent economies like Saudi Arabia and UAE comes from oil, the government revenue will also reduce, and the government may go into a budget deficit.

Most industries around the globe use oil, and a reduction in oil prices will help the other industries to produce goods at a cheaper rate and hence lower the prices and increase demand and restore consumer confidence which is much needed since the world is going through an economic slowdown.

The reduction in oil supply will also lead to a reduction in pollution which is caused during the extraction and refinery oil. The reduction in consumption oil will also reduce pollution caused by cars and other such goods.

Image- rigzone.com

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