The market for oil could be set to rebound following the announcement from OPEC that a deal had been reached between the Saudi-led cartel and other major oil producers around the world.
This should bring an end to the price war between OPEC and Russia which caused the price of oil to drop to historic lows in the last month after the two oil producing giants failed to agree on global oil output in March this year.
OPEC and other oil-producing nations were locked in tense negotiations over the weekend, and finally agreed on cutting the global production of oil by 10 million barrels per day. This is almost 10 percent of the total supply.
Oil prices have plummeted from $70 per barrel in early January to a low of $22 at the end of March, and it is hoped that the unprecedented cut in oil-production will boost prices and help the market recover from the devastating effects of the coronavirus and the price war.
THINK LIKE AN ECONOMIST!
Q1. Using OPEC as an example, explain what is meant by the term cartel.
Q2. Discuss the likely impact that a decrease in oil-production is likely to have on the price of oil.
Q3. With reference to the graph above, analyse the reasons for why the price of oil has dropped so significantly in the last 3 months.
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