I believe some of us may have read that the oil price is moving up… again.
Any news at all, if it’s a little negative about the oil supply will boost that price a little higher. Never mind that the sales of electric cars was a record high in 2020 despite COVID-19. Yeah, cars do CONSUME lots of oil… Never mind that the flights have reduced tremendously because no one could fly. Yeah, planes do CONSUME lots of oil too. Never mind that the SUPPLY remains elevated when we compare that versus the DEMAND. Here’s that latest news about oil price.
Oil price moving up is positive news, actually
Anyway, when the oil price is again moving up, there are positive signs too. It meant that people start to believe that consumption will again move upwards. It means they believe economic activity will be increasing. This is good as it also meant people would feel more confident and generally they may spend more.
When they spend more, the demand for goods will increase and this will fuel the production of more and with a higher production, employment would go up. With more people having a job, or changing jobs for a higher pay (in the oil industry for example), this meant that people would have even more money to spend and this would continue to propel the economy forward. So, oil price going up may not all be bad. Maybe bad for the drivers who could not afford an electric car yet.
The stock market has also shown more vibrancy too, especially the stocks related to oil… from logistics related to oil transport to piping companies related to oil to drilling companies related to oil and even any supporting companies to these oil industry supporting companies too. For example, the shipbuilding company if they happen to be building the oil tankers which the logistics company needs for their oil transport.
Just need to know that oil price is volatile
The reason why oil price started their downtrend was because the world felt that the supply of oil (from the Middle East and even the U.S.) was way higher that the demand for the oil. This has not entirely changed because the consumption has not recovered to pre-COVID19 levels yet. The oil producing nations still need to produce them because if they stop production, many people would lose their jobs. There’s just too many fixed costs which needed to be paid.
Travel bubbles may start to happen in the second half of this year. This may push the oil prices even higher as this would show demand moving up. More flights means more oil is needed. Just remember that the oil supply could also quickly be raised because many countries could raise their production quickly BUT that’s not a relevant because when people love the news they hear, then oil prices would continue it’s upward movement.
Happy understanding that oil price movement really does NOT adhere very closely to the demand and supply theory. It adheres more to the POTENTIAL story and the story could be written in both ways; positive or negative. Come to think of it, even the property market and the stock market does not follow the demand and supply that closely too. Sentiment and emotion are both major players in determining the movement of the prices too.
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