Oil prices depend on trading that’s why it changes day by day, maneuvered by traders who bid on the future in the consumer market. There are two categories of traders. One is the representatives of the companies who use oil and others are the speculators, their main agenda is to make money when the price of the oil fluctuates.
There are three factors use to determine the price of the oil.
First is the current supply. From 1973 to onwards OPEC (Organization of the Petroleum Exporting Companies) has the most percentage of oil exports in the world but on the competitive side US Shale Oil Production gave them a hard time in 2011 and 2014. Their rivalry in this business determines the price in the market.
Second is based on oil reserves. These reserves can be accessed when the pricing goes over the head and each country in the oil business has its strategic plans.
Third, being oil in demand which is mostly petroleum, how that changes the pricing from season to season in every country.
However, the two titans (Saudi Arabia and Russia) in the Oil industry have gone head to head in battling this situation of pricing for quite a time.
Saudi Arabia and Russia are the two juggernauts when we talk about Oil. Right now the situation is critical as far as human health is concerned due to the outbreak of novel coronavirus since 2009 the world oil demand is predicted to shrink in 2020 as the economies are squeezing around the globe. Oil prices are going down drastically as coronavirus has caused a pandemic around the world, transportation, and traveling has been reduced as cities getting lockdown are sharply targeting the demand of the fuel. Moreover, the last meeting between OPEC (Organization of the Petroleum Exporting Companies) and non-member countries it was decided to keep the old prices and raise them with time through this difficult period. Saudi Arabia and Russia have both worked together several times on the production issues of the oil, but this time Russia refused to join OPEC as they neglected the new agreement and stop working on the last one which was due to expire at the end of March. Saudi Arabia Hit back as a leading member changed the course over the weekend by cutting prices short and double up the production for the Asian Customers. By doing this Russia may rethink its offer and Saudi Arabia wants to emerge as a top oil exporter and by bringing Moscow in. On the contrary, Russia has a strategic long term plan that’s why they are doing this, by going through all of this and taking a heavy hit to get back to the US, so they can affect the financial health of the US.
The lowest prices have sent shockwaves to the financial markets as the use of transportation is minimized, people are focused on their diet and grocery items. The change in demand is one of the main reasons that the prices of petroleum have fallen, in this case, the trigger of the change in demand came from China as they shut down their economy first hand and everyone from there has just followed their footsteps.
As far as the implication of higher oil prices both micro and macro economies are affected in a certain way.
In the micro-economy of higher oil prices, one price always comes to mind: the price of gasoline. Whenever gasoline prices vary, the household budget fluctuates from time to time. The same goes for businesses particularly trade where goods have to be moved from one point to another through fuel as a main part of the system. What higher oil prices do here is making production costs more expensive for businesses like these and raise an issue among households too. The co-relation of oil and gasoline prices are somewhat the same.
Where macro-economy is concerned, inflation is caused whenever oil prices take a huge jump in the market similarly economic growth is another great factor affected. As far as inflation is concerned the products which are made by petroleum are affected by higher oil prices, as mentioned earlier how oil prices affect the economy through transportation, manufacturing, and heating. The consumer is ground in the process as producers increase production costs which in turn affect a variety of goods in the consumer market particular to different brands.
The increase in oil prices can resist the economy through the effects of supply and demand of other products as their production cost will be higher than the usual due to drastic changes in the pricing of oil, therefore, higher oil prices can shift the supply curve to a new level, but not every oil price increase turns into a recession.
Conclusively, the bad economy refers to any valuable item such as Oil. If the price is taken by a storm the marketing sector of the country will be affected as well. As mentioned above the co-relation between other products and oil, what marketing will be done here is that showcase that side of the products less valuable or usable to the consumer market. More online visibility of the products which are less needed in the household industry as well as manufacturing one. The government, as well as the private sector, will no doubt start improvising their marketing techniques to handle and create a balanced situation if one of the prime products such as oil is expensive than the others.