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Oil Prices Rise Globally

[fa icon="calendar"] May 17, 2018 6:23:37 PM / by Michelle Seiler Tucker

Michelle Seiler Tucker

The usual case is that with a weaker American dollar, oil prices drop because it then becomes cheaper for nations using foreign currencies to buy crude oil. However Because of continued turmoil and the coming renewed sanctions (set by the USA pulling out of the Iran deal), crude oil prices in the global marketplace are expected to rise as experts wait to see how such sanctions and political conflicts in oil-rich countries affect the global marketplace. Both European and American oil import prices have risen to almost a whole percent; the highest since November 2014. Experts predict up to 350,000 barrels of Iranian oil could be at risk of disruption if sanctions were re-imposed.

Currently, OPEC and non-OPEC producers have restricted themselves to 32.5 million barrels per day (BPD). A loss of a chunk of Iranian oil, as well as from fellow OPEC producer Venezuela as it goes through political and economic turmoil, could see around a million BPD lost. Other oil market experts are watching major oil producers closely given the situation with Iran. With prices moving close to $80 a barrel, this is now a good opportunity for Saudi Arabia and Russia to regain market share without crashing the oil price.

While the interest of being an independently oil-rich nation (as the USA is trying to do) may be a logistically sound one, the world economy is full of nations who are interconnected. Thus, any type of major change in international trade policy will affect the world economy. Typically shocks in oil prices will have an immediate and profound effect on consumers and capital-intensive businesses. Price elasticity of demand is the relationship between price and demand. As prices increases, the demand for that product will decrease as well. The interesting component of oil is that its elasticity of demand is very flexible due to everyday usage by consumers. When such regularly used commodities increase, this will decrease the average consumer’s purchasing power—hindering the individual to buy/invest the same way prior to the price shock. Because the demand does not fall sharply when prices increase, oil and energy producers stand to benefit the most as profitability increases. Inversely, consumers stand to benefit the most when oil prices decrease, and their purchasing power increases. Does your business rely heavily on oil and gas prices? Will increasing oil prices cut your profit margins? These are all relevant questions to ask if your business is capital-intensive.

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