The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Aayush Sharma, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur
While the black gold seemed like it was never going to stop being extracted, recent unfolding of events suggest otherwise. The world’s largest exporters of crude oil – Russia and Saudi Arabia – have agreed to freeze their production at January 2016 levels.
While the prices may start settling henceforth, this day has however not come with ease. In the global politics of oil, the current leading exporters have taken a long time before stabilizing their respective production levels. This has caused a severe crash in global oil prices. They have made sure that shale gas production rate hits a plateau so that the US does not get the entire benefit.
The silver lining is for oil importing countries like India which are seeing not only oil bills fall to almost half in the past 3 years, but also witnessing a sharp drop in retail inflation (which is linked to the Consumer Price Index).
Although there is high uncertainty in the market, but if other major oil producers follow suit, the oil price spiral may reverse. If this happens in the long term, not only would Oil Producing and Exporting Countries (OPEC) be in a comfortable position to increase production again but also India could lose its sweet spot.