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Oil Prices Effects on World Trade


Jeremy

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An insightful read the "impact of changing oil prices"; https://www.asktraders.com/learn-to-trade/trading-guide/impact-of-changing-oil-prices/ 

Oil is the one of the most crucial component in most of the industries, thus having fluctuations in the price would affect the cost of many products.  

Cost of production: Oil is a key input in many industries, including transportation, manufacturing, and agriculture. When oil prices rise, the cost of producing and transporting goods increases, which can lead to higher production costs for businesses. This, in turn, can result in higher prices for consumers, reduced profit margins for companies, and potentially a slowdown in economic activity.

Inflation and consumer spending: Oil price fluctuations can impact inflation rates. When oil prices rise, it can drive up the cost of energy and transportation, which can have a cascading effect on the prices of other goods and services. This can lead to higher inflation, reducing consumers' purchasing power and affecting their spending habits. Changes in consumer spending patterns can impact both domestic and international trade.

Trade imbalances: Countries heavily reliant on oil imports are particularly sensitive to oil price fluctuations. When oil prices increase, the cost of importing oil rises, which can widen a country's trade deficit and put pressure on its currency. This can have broader implications for international trade balances and exchange rates.

Energy-dependent industries: Fluctuations in oil prices can have a significant impact on energy-dependent industries such as airlines, shipping, and logistics. Higher oil prices can increase operational costs for these industries, affecting their profitability and competitiveness. This, in turn, can impact global trade flows and supply chains.

Geopolitical and regional dynamics: Oil price fluctuations can be influenced by geopolitical events, conflicts, and decisions made by major oil-producing nations. Unstable oil prices can create uncertainties and tensions between oil-exporting and oil-importing countries, potentially impacting trade relationships and global economic stability.

Investment and financial markets: Oil price fluctuations can affect financial markets and investor sentiment. Many financial instruments, such as futures contracts and exchange-traded funds (ETFs), are linked to oil prices. Sharp movements in oil prices can lead to volatility in these markets, impacting investor confidence and potentially affecting broader financial stability.

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Hi Jeremy,

The oil prices rose to an unprecedented high when the global crisis hit the world economy in 2008. 2020 has seen oil prices take a sharp decline since the measures to curb the Covid-19 pandemic took effect. While these fluctuations in oil prices are difficult to control, they play a role in economic changes, causing various consequences on world trade.
As the oil prices keep changing, the terms of trades also change. The low oil price is perceived to result in economic development, while high oil cost is associated with inflation, unemployment, and low economic growth.
That way, if oil price shoots, the oil-importing nations suffers from the high cost of importing the product while the oil-exporting nations get a boost in the national earnings through export income. The impacts, however, gets more pronounced when the change in oil price last longer.
A drop in oil price, like in 2020, is good news for world trade because businesses incur lower operation and shipment costs. That way, the oil-importing countries, and their fuel-intensive companies experience a boom in business.
High oil prices increase the production cost of businesses (such as heating, manufacturing, and transportation). With the increased production cost, businesses can pass the costs to consumers, making products and services less affordable. In general, it leads to inflation, which stagnates world trade and economic growth.  
High oil prices can also affect the demand and supply of none oil commodities. It can reduce supply by making production too expensive such that businesses can only create a few products.  However, while the oil price still plays a role in world trade and the world economy at large, there's evidence that the economy's effects have reduced over time. Thanks to the increase in energy efficiency, improvement of monetary policy, and flexibility in labor markets.
 

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