IB Economists

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 th...

On 8th March 2020 there was a price war between Saudi Arabia and Russia, which consequently caused 31% price drop (From $31.02 to $20 per barrel). The factor which led to the price war between the two countries is the drop in quantity demand for oil barrels due to the widespread of Coronavirus, subsequently Russia refused to agree with  OPEC to stabilise/fix a price, clearly indicating a non-collusive oligopoly. The price war has caused the oil prices to drastically fall, and has also led to reduction in the world oil supply, which can have drastic effects on the economy because oil is an essential resource for the world, as oil is used for transportation, energy production, cooking and more, without these activities an economy will have major problems in functioning, for instance visualise an economy sustaining without electricity; communicating with other without electricity would become impossible, which can result in an economy down turn. Nonetheless, the reduct...