Question

In: Operations Management

Crude futures in New York were lower on Wednesday, following a record decline in the first...

Crude futures in New York were lower on Wednesday, following a record decline in the first quarter

Oil held near $20 a barrel as Saudi Aramco’s output surged above 12 million barrels a day, but Russia said it would refrain from further production hikes.

Crude futures in New York were lower on Wednesday, following a record decline in the first quarter.

While state-run Aramco’s oil supply has surpassed 12 million barrels a day and is ticking higher, Russia said it won’t lift output as it’s not profitable to do so, according to a government official familiar with the country’s plans.

President Trump has said the US will meet with Saudi Arabia and Russia in an attempt to bolster prices.

The market is grappling with a bumper oversupply, while demand is set to fall by as much as 30 million barrels a day in April, according to an executive at the world’s largest independent oil trader.

Any agreement to cut output would likely be too late and would fall short of the loss in consumption, according to Goldman Sachs Group Inc.

Industry data signaled that US oil stockpiles are set for their biggest weekly increase since 2017.

“I don’t think they’re going to come to the table for talks just yet, because for both sides, it would require a significant step-down,” Amrita Sen, chief oil analyst at Energy Aspects said in a Bloomberg TV interview. “I do think both Russia and Saudi Arabia will be forced to cut back production, not because there’s a deal or they’re talking, but because of market forces.”

Prices:
West Texas Intermediate lost 21 cents to $20.27 a barrel as of 10.35am in London
Brent crude for June settlement fell 4.8 per cent to $25.09
Dated Brent, the benchmark for two-thirds of the world’s real oil supply, was assessed at $17.675 on Tuesday, down 11.5 cents from Monday when it was already the lowest price since 2002

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Required Question

Question 01: Discuss the major drawbacks in the Gulf Countries economy?

Solutions

Expert Solution

The major drawbacks of the gulf countries economy is the overdependence of the oil industry. The Oil industry is a major contributor to the gulf countries economy and any lowering of oil prices means a hit to the economies. The middle eastern economies do not have a large domestic market as some of the other economies. They are more dependent on exports for their businesses. Also, these countries lack skilled professionals and labour as their educational infrastructure is not as well developed as other countries. This creates a knowledge imbalance as these countries are dependent on foreign workforce. Low infrastructure and industrial development in these countries have hampered their ability to compete with other countries. The boom of oil industry meant that these countries have neglected the development of other industries such as manufacturing, software or services. Service industries have growth potential due to a large influx of ex-pats and foreigners in the Gulf countries. These countries are flushed with cash from the oil boom and hence have some of the highest per capita income which they are able to spend on services but the lack of development in sector and focus is hampering its growth


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