October 30, 2023
In the world economy, few things matter as much as oil. It's like the lifeblood that keeps everything moving. Our world was built around oil, not the other way around. It's in our cars, it is used for transporting goods and it makes sure our supply chains run smoothly. When oil prices go up, it affects our lives, both in big and small ways.
Today, we want to explain how oil prices touch every part of your life and show you how you can make the most of higher oil prices.
Higher oil prices mean you spend more money. When gas and diesel prices rise, it's not just the cost of filling up your car that goes up. It also makes the price of goods in stores increase. When oil prices stay high for a while, it can even slow down how much money people spend.
The government is already trying to fight inflation, which it partly caused. Having too much money around makes prices go up, and so does expensive oil. When oil prices are high, it affects almost everything in the supply chain. Industries that use oil and its byproducts, like petrochemicals and plastics, will see their costs go up. These costs get passed on to consumers, causing what we call "cost-push inflation."
When oil prices rise, shipping goods also gets more expensive. This can mean higher costs for companies involved in distribution, which could end up costing you more too. This doesn't just affect how much things cost; it also messes with how efficiently goods move from one place to another.
We can see right now that higher oil prices are really shaking up global trade. The world is dealing with problems from Russia not sending much oil, and OPEC cutting down on production. When oil prices go up, countries that sell a lot of oil can make more money. But countries that buy a lot of oil might see trade deficits because of the higher prices. This situation can change the value of currencies and has political consequences, like the United States having a harder time working with Saudi Arabia.
Something people don't think about much is that higher oil prices can lead to even higher oil prices. Why? Because the cost of making oil goes up when the cost of diesel and gasoline rises.
Expensive energy can slow down the economy in a big way. When energy costs more, prices go up, and people spend less on other things. Every Rupee people put into gas is a Rupee they can't spend on other stuff. It also means less money saved, which banks need for making loans and helping the economy grow. Slower growth can lead to fewer jobs, less investment, and more help from central banks.
This is the most important part for us as investors. Oil prices directly affect the stock and bond markets. For the last three months, the Energy sector has been the top performer, but it has been hard on consumer cyclical stocks and other sectors sensitive to energy prices.
Oil is the most important commodity in the global economy. Our whole world depends on it, not the other way around.
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