In past weeks, there is a sudden decrement in the prices of oils. It decreased from $60 a barrel to almost $20 a barrel. What was the actual reason behind this sudden downfall of prices? Let's find out.
The price of any product in a market depends upon demand and supply. So if the demand for any product increases but there is less supply of that product then the price of product will increase. In the same way, if the demand for product decrease but the supply of a product is more then the price of that product will decrease. The same concept is with the oil production and sale of oil.
The top three oil-producing countries of the world are the USA, Russia, and Saudi Arabia. So the motive of every country is to sell oil at higher prices than other countries to gain the maximum profit.
But the buyer of oil always tries to get it at as much lower prices as he can. So all these countries try to set up a limit for the cost of oil so that all the three countries get equal benefits in the sense of gained profit. Therefore there is an alliance between all these countries which is known as OPEC(Organization for Petroleum Exporting Countries). It has 13 countries including Iran, Iraq, Kuwait, Libya, Nigeria, UAE, Saudi Arabia. But the two countries Russia and the USA are not part of OPEC.
An agreement was signed in December 2016 between OPEC and non-OPEC countries. According to which it was decided the production of oil will be increased to 1 million barrel per day to gain equal profit and to maintain stability in the market. This agreement was named OPEC+ and 24 countries were included in this.
As of the meanwhile situations, most of the countries are lockdown so the industries, airports, all are closed. Because of which the demand for oil decreased. So the OPEC called a meeting for all its 24 to make an agreement that we should decrease the production of 1 million barrel per day to get the profits. But Russia denied doing this. Even Russia raised his production which resulted in a huge fall in the prices of oil. So the question arises why Russia did so?
Let's find out. The main reason behind this was that Russia wanted to affect the USA oil production. Although the rivalry between Russia and the USA is going on from the 1950s. But in the aspect of oil production, it started in 2014-15.
So the decision of Russia will make the USA oil industries in great loss. But it is indirectly beneficial for oil-importing countries like Japan and India because of the low prices of oil these countries can actually save their billions of dollars. So what is your perspective for the decision taken by Russia? Feel free to share.
Tags : oil, price war, USA, Russia, Saudi, export, import