Crude oil is a natural petroleum product commonly used for manufacturing purposes and energy production. It is typically purchased with the intention of being refined for everyday usage, whether as diesel, gasoline, jet fuel, heating oil, fertilisers or plastics.
As a result of its broad international usage, crude oil’s price has an influential impact on the global economy. Generally speaking, when oil prices are high they tend to destabilize economic growth as inflationary pressures are increased due to an increase in travel and shipping expenses. This in turn leads to a weakening of personal consumption.
Some of the major names in the crude oil industry include West Texas Intermediate (WTI), Brent Blend and Bonny Light. There are also varying types of oil, including heavy, light, sweet and sour. Heavy oil has a very high density while light oil is much lower in density. Sweet oil contains less sulphur while sour oil’s sulphur levels are far more excessive. The international market favours light, sweet crude oil as the refinement and production times are much more limited before entering the market.
A number of factors can significantly influence the price of oil, including political and environmental factors. The balance of supply and demand has a direct impact on oil prices as oil is so heavily consumed every single day. Investors tend to analyze the relative strength or weakness of a global economy to establish the level of consumer demand. Factors analyzed include GDP, consumer spending and retail sales, which are analyzed against projected inventories. Financial market sentiment also tends to have a significant influence over the price of oil. Finally, technological advancements in alternative energies can also influence the price of oil.
Oil prices are usually quoted on a per-barrel basis. Oil trading is executed based on changes to the price of crude oil, whereby the direction of the price’s movement influence whether or not a trader profits. The price of oil also has an impact on forex trading. For example, in the event that the US dollar weakens in value, the price of oil may experience a rise in value.
Crude oil is a highly valued investment vehicle in the financial markets. It accounts for 40% of the world’s energy demand and is one of the most closely followed commodities on the market. Because of its market influence it features in many traders’ investment portfolios.
A notable factor about oil is that its price never seems to remain at a consistent level. It fluctuates frequently, largely because it is regarded universally as a product that is the same no matter how it is produced.
Although there are many traded commodities, crude oil has the most extensive international impact. The future of the global economy, the environment and our daily lives will be significantly influenced by how the world interacts with the crude oil industry in years to come.