Friday, September 29, 2023

What consequences will it have for the economy?

The price of oil has risen significantly again in the last few weeks. And why is the price of oil rising? Well, because demand is greater than supply, because there are geopolitical tensions, because Russia and Saudi Arabia have decided to cut production, because there is financial speculation… and because yes. This increase, which comes against a backdrop of global inflation, is fueling fears that the global economy could be affected. And what can we do? Well, not much actually. Maybe buy a bike or use public transportation.

Oil is an important raw material for the global economy. It is used in energy production, transportation and other sectors. Therefore, the increase in its price has a significant impact on the cost of production and the prices of goods and services.

But not everyone is happy with the price of oil. Some want it higher, others lower and others more stable. The problem is that the price of oil depends on many factors that cannot always be controlled. For example, Supply and demand, geopolitical tensions, OPEC decisions, weather conditions, investor expectations, etc.

Of course, it’s not just a matter of supply and demand, geopolitical tensions, OPEC decisions, climatic conditions, investor expectations, etc. There is also a structural problem. In other words, there is no infrastructure capacity as not much has been invested in building new refineries etc.

And what does that mean? well then There are not enough facilities Process crude oil and convert it into secondary products such as gasoline, diesel or kerosene. This leads to a shortage of these products and their prices continue to rise.

And why wasn’t there investment in new refineries? Because They are very expensive, very polluting and heavily regulated. Also because the future should be renewable energy, not oil. But in the meantime we continue to depend on the black gold.

In the context of inflation, the rise in oil prices can exacerbate the problem. Inflation is an economic phenomenon that occurs when the prices of goods and services rise steadily. This reduces consumer purchasing power and may lead to an economic recession.

The increase in oil prices can have several consequences for the global economy:

Increase in inflation: The rise in oil prices makes products that depend on it, such as gasoline, natural gas and electricity, more expensive. This can lead to increased inflation, which reduces consumer purchasing power and can lead to an economic recession.

Slowing economic growth: The rise in oil prices increases production costs, which may lead to a slowdown in economic growth. This particularly affects oil-importing countries, which have to spend more money on purchases. On the contrary, oil-exporting countries benefit from price increases because they generate more revenue from their sales.

Increase in financial market volatility: Rising oil prices can increase volatility in financial markets, which can complicate economic planning. Investors may react to oil price fluctuations with panic or euphoria, which can lead to drastic price fluctuations in stocks, currencies and bonds.

And what can we do in this situation? So It depends on our role in the economy. If we are consumers, we can try to save energy and look for cheaper and more environmentally friendly alternatives to oil. If we are producers, we can try to diversify our economy and not be so dependent on oil. As investors, we can try to take advantage of the opportunities that the market offers and not get carried away by emotions.

Oil prices are a conundrum with no simple or consistent solution. The only thing that is certain is that it will continue to change and have an impact on our economy. So We should be better prepared and adapt to the circumstances.

Oil is a headache in many ways. Only because If inflation rises, we are forced to get the Fed to raise interest rates as well. With credit more expensive and oil prices higher, a recession is much more likely. Which isn’t very encouraging. AND not very positive for financial assets like Bitcoin.

Why does oil affect inflation so much? Because it is a basic commodity that is used in many sectors of the economy. When the price of oil rises, the costs of producing and transporting other goods and services also rise. This is called the pass-through effect passage. And as a result, general prices rise.

And why does the Fed raise interest rates when there is inflation? Well, because it’s his way of controlling her. The Federal Reserve is the central bank of the United States whose job is to regulate monetary policy. When the Fed raises interest rates, money becomes more expensive and scarce. This discourages consumption and investment, reducing aggregate demand. And that causes prices to fall.

And why can more expensive credit and higher oil prices lead to a recession? Well, because they are factors that slow down economic growth. A recession is a situation in which the economy is contracting for two consecutive quarters. This implies a decline in gross domestic product (GDP), employment, income and consumption.

And why is a recession not good for financial assets like Bitcoin? Because They are highly volatile and speculative assets that depend heavily on investor expectations and confidence. If a recession occurs, investors may lose interest or money to invest in these assets, causing prices to fall.

In total, Oil is a headache in many ways as it can trigger a chain of negative impacts on the global economy and on financial assets such as Bitcoin. So we had better be alert and prepared for what might happen.

Nation World News Desk
Nation World News Desk
Nation World News is the fastest emerging news website covering all the latest news, world’s top stories, science news entertainment sports cricket’s latest discoveries, new technology gadgets, politics news, and more.
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