Oil price and economy

Oil price and economy

Oil and economy

The oil industry is one of the most effective and largest industries in the world. In addition to being a major source of energy in today’s world, oil also plays an important role in determining the level of national power and international prestige of different countries. Benchmark U.S. crude oil prices dived into negative territory on Monday, due to a collapse in demand caused by the Corona virus pandemic and a lack of storage capacity for excess supply. 

 

While June futures contracts for WTI crude and prices for Brent crude remain positive at levels of over $20 per barrel, the pain for the oil prices may be far from over, given that transportation and industrial activity, which together account for more than 90% of crude oil demand, are likely to remain depressed in the near-term.

Our analysis U.S Oil Consumption by Sector shows underlying numbers across residential, commercial compared to transportation and industrial consumption. The oil market ended with the news of a meeting between the oil ministers of Saudi Arabia and Russia and their reassurance to the importing countries about preventing a shortage of oil supply in the market.

 

They said they would discuss increasing supply at the next OPEC meeting, as high oil prices are to the detriment of consuming countries. Oil has always played a very complex role in the global economy, which is often very difficult to understand.

In the past, supply-side shocks and oil price spikes have caused many recessions and economic crises. But over time, the mechanism of the impact of oil on the economy has changed.

On the one hand, with the expansion of the world energy basket, the power of oil has decreased, and on the other hand, with the emphasis on the role of the United States in the global oil supply, given the size of its economy, rising prices can not threaten the world economy. However, there is a ceiling for the positive impact of oil prices on the economy, given the rising costs of oil-importing countries as well as rising household costs. However, the sharp decline in oil prices, given its negative impact on inflation in consuming countries, declining incomes of producing countries and declining investment and employment in the US oil industry, can not have a positive impact on the global economy.

However, there is a ceiling for the positive impact of oil prices on the economy, given the rising costs of oil-importing countries as well as rising household costs.

However, the sharp decline in oil prices, given its negative impact on inflation in consuming countries, declining incomes of producing countries and declining investment and employment in the US oil industry, can not have a positive impact on the global economy.

Key takeaways of oil

Oil prices are influenced by a variety of factors but are particularly responsive to decisions about output made by OPEC, the Organization of Petroleum Exporting Countries.

Like any product, the laws of supply and demand influence prices; a combination of stable demand and oversupply has put pressure on oil prices over the last five years.

Natural disasters that could potentially disrupt production, and political unrest in an oil-producing juggernaut like the Middle East all impact pricing.

Production costs influence prices, along with storage capacity; although less impactful, the direction of interest rates can also influence the price of commodities.

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