Question

Discussion 2: market price SLING KIM 1 Section According to the article, "Global Markets Stagger ---Dow plunges 7.8%, suffering worst drop since 2008 ... Oil prices post biggest slide since Gulf War in 1991 ---Yield on 30-year bond falls below 1% for first time" oil prices went down the most since the Gulf War in January 1991. The plunge in oil prices was caused by a price war between Saudi Arabia and Russia. It also contributed to a sharp decline in stock prices. How would this price war between Saudi Arabia and Russia trigger a drastic decline in oil prices? Briefly discuss this issue using the theory of demand and supply. Source: Vigna, Paul: Chilkoti, Avantika; Winning, David:"Global Markets Stagger --Dow plunges 7.8% suffering worst drop since 2008 Oil prices post biggest slide since Gulf War in 1991 --- Yield on 30-year bond falls below 1% for first time, Wall Street Journal, Eastern edition March 10, 2020: New York, NY Due: March 17 (Tue) at midnight Search entries or author Unread na 4 Reply Replies are only visible to those who have posted at least one reply. 6 7

Answer 1

The biggest consumer of crude oil is China. Because of COVID- 19, China shut most of its cities and economic centers leading to huge crude oil build up and steep fall in imports of crude oil. As the virus spread all across the world and started affecting their consumption of crude oil, there was massive fall in demand for crude oil and fearing that the prices could go even lower, OPEC sought to reduce crude oil production to increase the crude oil prices.

OPEC and mainly Saudi Arabia ( world's biggest producer of crude oil ) wanted to sign an agreement to cut crude oil production along with Russia to ensure the fall in crude oil production was large enough to compensate for fall in demand. But, Russia didn't agree to scale down its production of crude oil, which led to largest fall since Gulf War 1991.