Question

1. Read the following paragraphs to answer the question Why cartels like OPEC fail to reach to consensus on price and quantity?

When markets were collapsing as the coronavirus pandemic crushed demand in March and early April, the idea that crude could rise again to $40 a barrel was “a dream,” the energy minister of the United Arab Emirates, HHSuhail Al Mazrouei said during a conference call on Monday. That was before the OPEC+ alliance agreed unprecedented cuts in output.

Prices could return to “normal” within a year or two as curbs approaching 10 million barrels a day drain excess barrels from the market, Mazrouei said during the call hosted by the Atlantic Council, a Washington-based research institute.“We have seen very good signs of demand picking up,” Mazrouei said. “We have seen numbers of driving vehicles are picking up,” he said, citing demand growth in China, India and Europe.

Still, the direction of oil prices will hinge to a large extent on whether a second round of infections forces economies into lockdowns once again, he said.

Led by Saudi Arabia and Russia, the group aims to support a rally that’s seen Brent more than double to around $40 a barrel since late April, paring its loss this year to 40%. For that success to continue, all OPEC+ members must adhere to their production quotas, while other suppliers must refrain from resuming output too quickly, Mazrouei said.

“In previous deals we had countries cheat because there was no rule. Now there is a rule, so countries are coming and stating their commitments,” Mazrouei said. The OPEC+ agreement has effectively created a “permanent” group of nations -- one bigger than the Organization of Petroleum Exporting Countries -- that will coordinate to manage crude markets, he said.

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Required Question:

Why cartels like OPEC fail to reach to consensus on price and quantity?

Answer 1

Answer....

Due to nationwide lockdown and decrease in transportation across the globe, the demand of crude oil fall drastically and resulted in a decrease in price of crude oil per barrel. To tackle the situation, Oil Producing And Export Countries OPEC curtails country wise oil production to maintain the demand supply situation.

But not any curtailment could achieve the objectives of above said steps. and OPEC failed to reach to consensus on oil price and quantity. This happened because in previous deals countries cheated each other and there were no any specific rules for this country wise curtailments.It failed because member countries did not follow the curtailment and produce crude oil more than set limits, which increases the supply compared to demand.

Due to failure to reach to consensus the price and quantity, the OPEC organisation failed to maintain regulated supply in the market having reduced demand and hence oil prices reduce drastically.