Oil Crisis 2020 | Low Crude Oil Prices - Explained

Описание: As a result of current lockdowns in various parts in the world. The Demand of crude oil reduced significantly. To keep the oil prices stable, supply of crude oil must be maintained. For this Saudi Arabia proposed to reduce production of crude oil to Organization of Petroleum Exporting Countries (OPEC) and OPEC plus countries. OPEC is international organisation for oil producing countries. OPEC and OPEC plus together controls 55% of oil production the in world. Most of the oil producing countries are a part of OPEC organisation except USA.
Yet, Saudi's proposal to reduce the production of crude oil was denied by Russia and due to this Saudi started to increase the production oil.

But why Russia did not accept Saudi’s proposal?
The answer is pretty much simple, Russia wants to target US oil producing companies. Till a decade ago US was the biggest importer of crude oil. But after the shale revolution US become the largest crude oil producing country. And this competition reduced Russian oil markets.

But now Storage centres all around the world are completely filled with the crude oil. Most of the oil producing countries are producing oil below the manufacturing cost.
And the result of this is significant drop in oil prices.

Now couple of questions are raised on how this is going to affect the world?

Question no.1: What will be the effect on oil importing countries?
Countries who are importing the oil will get benefit if they lift the lockdowns and start importing oil, but this is not going to happen anytime soon.
China the 2nd largest oil consumer and the largest oil importer, has lifted the lockdown and started its manufacturing factories. But currently they don't have any demand for their products. As most of the Chinese companies run by exporting their products to US and Europe. Countries like India, the 3rd largest consumer of crude oil is in complete lockdown from more than a month now. Same is with Japan, South Korea and other nations.
The low oil prices could benefit upto 20% to 30% in terms of money to the countries. But even after the lockdown over, people won’t have money to spend. So to get the complete benefit of low crude oil prices is would not be easy. Yet in near future oil prices will not rise drastically. So, low crude oil prices could help countries to boost their economy.

Question no.2: How the low oil prices will affect oil exporting countries?
Countries like Russia, Saudi Arabia, US can sustain in these oil price war but small countries like Iran, Iraq, Argentina, Kazakhstan and other small countries in Africa cannot sustain. Economy of these countries are completely depends on oil exports. The US can face big job losses in the crude oil industries as these companies are private and could go bank corrupt. Also thousands of workers from India, Bangladesh, Indonesia working in oil companies of the gulf countries could lose their jobs, as a result of this oil crisis.

Very low oil prices can be beneficial for some countries for short run. But in long run it will be a disaster. Also this could shift the focus of people from renewable energy and this would turn out to be bad for the environment.
So oil producing companies should make efforts to make oil prices more stable.

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