Question

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.

Required Question

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

Answer 1

Countries like OpEC fail to reach to consensus and cartelisation as their differences of opinions come into picture leading to conflicts.

Cutting down production leads to lower market share penetration and increasing production leads to lower prices which reduces profitability and this dilemma keeps them from reaching strong conclusions. With different personal views, national economy dynamics, global uncertainty, geographical diversity the cartelisation is usually impossible to reach.