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Business & Marketing
Multiple Choice Questions
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What Influences the Prices and Outputs of Oil? (Multiple Choice Questions Sample)


explain what influences oil prices


1) What has happened to the price of oil since the beginning of January 2020? According to the article which country, Russia or Saudi Arabia, is in a better position to sustain prices at this low level for the longest period of time? Justify your answer.
(20 marks)
Oil prices have been on a steady drop since January 2020. Due to corona virus, movement was greatly curtailed and a lot of businesses shut down. This led to a drastic drop in oil demand which in turn has affected oil prices negatively.
Although Arabia has lowest oil production rates in the world, its economy almost entirely depends on oil sales and it cannot handle oil prices going lower than 50 dollars a barrel as this will dry out its coffers. This gives Russia an upper hand in sustaining low oil prices for a longer than Arabia since it has many contributors to its inflow income and its economy is not over reliant on oil sales. This means than even though Russia spends more on oil production than Arabia, it will be able to sustain low prices for longer as compared to Arabia.
2) According to the article why has Saudi Arabia decided to increase oil production to record levels at this time? (16 marks)
Arabia has decided to increase its oil production to 12.3m barrels a day from their usual average of 10m barrels a day. This is after it waged an oil price war against its rival oil producing countries like Russia and USA, keeping in mind that these countries have increased their oil production in the recent years, challenging Arabia’s oil market. They did this in a bid to maintain and secure their dominance in the oil market. This came after Russia refused to heed the OPEC advice of limiting oil production during this period when oil demand is low. By doing this, they hope to crumble oil prices further to the point where it will be pointless for Russia to keep producing oil due to the huge losses they will be making. They have boosted this move by giving their key buyers 

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