This article talks about the current oil situation that has caused the prices to be on a decline since a while now and how the oil producing countries have been trying to find solutions in increase the price of oil.This article translates how two of the biggest oil producing countries Saudi Arabia and Russia have made a pact to instantaneously seize oil productions at the current January levels. Explaining this through the model of demand and supply translates as a decrease in the supply of oil in the global market which in turn will cause the oil prices to rise. A decrease in supply of oil production accompanied by unchanged demand causes the price to rise. The article also highlights the importance for other oil producing countries to join in this pact so that there can be a substantial rise in price. Although there have been political tensions between both the countries but this deal is helpful to both these oil dependent countries. One downside of this agreement that the article talks about is that currently countries like saudi arabia are pumping oil at record levels and a stop right now although is positive but will do less in hiking the price up as there is oversupply of oil
Link: http://www.economist.com/news/finance-and-economics/21693244-potential-freeze-oil-output-will-do-little-buoy-prices-another-doha
I found this article very interesting. I think that it would be hard to get all the oil producing countries to cut back on the supply of oil. The reason i say that is if oil supplying countries cut back there will be one country that wont cut back because they will be the main supplier and bring in a lot of money doing so. I wounder how long it would take if they stopped pumping oil for it to raise the price due to the over supply of oil.
ReplyDeleteI also agree that it would be hard to get the oil producing countries to cut back production. I however have a different concern than that of one of the players not agreeing to a price cut. It has been noted that over production may have been used in order to deter American companies from producing due to the higher costs. I think it would be difficult for them to accept a cut back on supply if they know that this cut back could also help the American companies thrive at the same time.
ReplyDeleteI agree with Will and Zach! Furthermore, I believe if you read at the end of the article you realize that these countries are not cutting back as much as the above description indicates. As stated in the article Russia and Saudi Arabia thought that everyone in OPEC was in agreement to cut supply. However, it appears that is not the case. Plus as stated, the record level of production indicates that oil prices will not drop all that soon. I would also agree with Will’s statement about oil prices being used to deter America (Earlier in the week I made a very similar point on another article). Furthermore, since the U.S. is the leading producer of oil in the global market right now, Russia and Saudi Arabia will realize their cut in production is a means to help both the U.S. and the other oil producers. This leaves the question: will Saudi Arabia and possibly Iran be willing to take the hit production in order to keep their Cartel power, or will they feel the need to abandon their alliances in hopes of keeping a strong hold in the industry?
ReplyDelete