COVID-19: THE GLOBAL SHUTDOWN – HBR

CASE STUDY

AN EASY-TO-FOLLOW SOLUTION TO THE HBR CASE STUDY – BY TEAM IFINTALE

OPEC DECIDED TO REDUCE THE SUPPLY OF OIL BY 9.7 MILLION
BARRELS PER DAY. WHY?

 The OPEC decided to cut the supply of oil to control and stabilize oil prices and to control the massive oil stock
builds.They decided to reduce the supply of oil by 9.7 million barrels per day from May 2020.
 The result of the decision was, Spot crude oil prices rebounded in May from low levels registered in the month of
April. Crude oil futures prices also bounced back in May, amid renewed optimism on the outlook of global oil
market fundamentals and expectations for a further recovery of oil demand and tightening global supply.
 The supply decreased post the supply cut decision taken by the OPEC and subsequent demand (which was
already at low levels due to the decrease in the global demand among the pandemic and subsequent measures
taken by countries to control the spread) remained constant. Resultantly, supply curve S moved left to S1 while
the equilibrium price level increased from P to P1 depicting an increase in the price levels from an historic low-
price level prevailing in April.
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