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Avatrade comments on oil prices
As oil prices rise to over $90 a barrel for the first time in 2023 due to the two largest oil exporters, Saudi Arabia and Russia, continuing to cut their supplies until the end of the year, concern over rising inflation pressures globally is climbing. We ask Kate Leaman, Chief Market Analyst, AvaTrade (www.avatrade.co.uk) on the likely impact that this latest rise will have on businesses and consumers.
“On Tuesday, Brent crude futures made quite a jump, rising by $1.04 per barrel, marking a 1.2% increase and settling at $90.04 per barrel. This was a significant moment as it broke through the $90 threshold for the first time since 16th November 2022. Simultaneously, U.S. West Texas Intermediate crude (WTI) futures followed suit, climbing by $1.14, a 1.3% gain, with a closing price at $86.69 per barrel, reaching its highest point in 10 months.”
“It’s common to link big changes in oil prices with how the stock market performs. We often think that when oil prices go up, it means more expenses for businesses and consumers, potentially leading to lower corporate profits. On the flip side, when oil prices go down, it should be good news.
“An economist named Andrea Pescatori studied this relationship back in 2008. He looked at the S&P 500, which is a way to measure how well the stock market is doing, and oil prices. What he found was a bit surprising. Sometimes, these two things moved together, but it wasn't a strong connection, and he couldn't say for sure that they were linked with a 95% confidence level.”
“The impact of oil prices on the U.S. economy is complex. When oil prices are high, it can be good for some things like creating jobs and encouraging investment in the oil industry. But it’s not all sunshine and roses as high oil prices can also make life more expensive for businesses and people who rely on transportation. On the other hand, lower oil prices might not be great for unconventional oil operations, but they can be a boon for industries that are sensitive to fuel costs. So, it's a bit of a balancing act.”
“Nevertheless, in the UK, where not much oil is produced, the impact can be more direct. Since the country relies heavily on oil imports, when prices go up, it hits consumers harder, especially because of those higher fuel taxes. On the plus side, in UK cities, where public transportation is more common, it can help ease the burden on individual households.”
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