Question

Comment on whether the price war would likely to end soon. (Base on your knowledge on Cartel and take Russia and OPEC as an example)

Answer 1

Price War I: 13 months. In June 1985, at a meeting in Taif, Saudi Arabia, King Fahd warned OPEC countries that his country would no longer carry the burden of production cuts alone. In November, Riyadh moved to flood the market. Oil plunged from $31 a barrel to $9.75 a barrel in six months. The peace didn’t come until December 1986.

Price War II: 17 months. It started in November 1997 at a meeting in Jakarta, Indonesia. Saudi Arabia boosted production to fight Venezuela, which was quickly grabbing market share in the lucrative U.S. market. What Riyadh hadn’t anticipated was that demand would collapse amid the emerging-markets crisis and warm winter. Oil fell from about $20 a barrel to less than $10, and the peace didn’t arrive until April 1999.

Price War III: 22 months. It started in November 2014 with a meeting in Vienna. Tired of non-OPEC countries freeloading on the cartel’s production cuts, and worried about the impact of the U.S. shale revolution, Saudi Arabia adopted a policy of pump-at-will. Oil collapsed from about $100 a barrel to $27.88. The peace didn’t come until September 2016: Riyadh made a U-turn and Russia joined the cuts.

This time, the battle was more brutal from the start, with prices crashing more than 35% in days. In past wars, prices tumbled slowly, over a period of months. Riyadh’s new shock-and-awe tactics may just shorten the fight by inflicting so much pain, so quickly, that everyone has to come to the table sooner..

History guides us that the price war would be a long one and not likely to end soon.