Tag Archive: Crude Oil

What affects oil prices?

Oil Prices

What affects oil prices? This can be a possible question in case you are interested in investing in the sector. There are many factors that affect the price of oil. They range from oil production to the way it is handled in the market. Oil is a mineral that is available naturally. In some areas there is plenty of oil while in other places it is very rare. There are many countries in the world that have a lot of oil resources which has made their economies grow. The mineral has many uses such as in powering industries and in the automotive sector. There are also other petroleum products that can be used for different purposes hence the commodity has many uses. Here are factors affect oil prices:

  1. Global changes in supply and demand

The oil production in the world is controlled by OPEC. The organization tries to maintain stable price for a barrel of oil but due to different challenges the price of oil barrel has been fluctuating. Because oil is produced in specific regions of the world, it depends on different means of transportation to reach different parts of the world. The constraints in transporting the oil to different parts of the world lead to differences in demand hence making the price of oil to fluctuate.

  1. War and political instabilities

Due to political instabilities in countries located in the Middle East, there has been an increase in the price of oil. This is due to the fact that when the countries that produce oil go into war with each other, they stop the oil production activity. A good example where political instability lead to an increase in the price of oil is when the countries that produce oil in the Middle East were in war with the USA. The most hit countries by the increase in the price of oil due to the war was those that used to import their oil directly from Middle East countries. War leads to lowering oil production hence leading to an increase in the world prices. The rise in the price of oil due to political instabilities in the producing countries affect many economies of the world especially those that rely on power from the oil to run their factories. This is mostly manifested where the cost of production goes up.

  1. Oil available in oil reserves

The price of oil in different countries can be affected by the oil reserves of the countries. For instance, different countries that do not produce oil will import it from oil mining countries and store it in their oil reserves. In case of a decrease in the supply of oil in a given country, the government of the country can decide to tab oil from its reserves. This will lead to the price of oil falling because traders will fear more decrease in the price of oil hence releasing more to the market. Some of the oil reserves that the government can tab to regulate oil prices include oil available in the oil refineries.

Best Commodities to Trade in 2015

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An outlook at the Canadian dollar

As the year comes to a close the Canadian economy faces a five-year low. Owing to the slump in the sale and purchase of crude oil which is one of the country’s largest exports, the Canadian dollar reached an all-time low. It depreciated by 0.5 percent, closing at $ 1.1534 per U.S. Dollar. This has been recorded as the weakest that the Canadian currency has reached since July 13, 2009.

What Are the Current Exchange Rates?

Following the trend across the international markets and the domestic situation in Canada, the conversion rates have been predicted to be around:

  • The Pound Sterling to the Canadian Dollar is at 1.8384
  • The Euro to the Canadian Dollar is at 1.4533

Causes

  1. Crude Oil Export – Financial experts have ascertained that the fall in the strength of the currency is owing to the declining profits of the crude oil business. As crude oil prices fell to about 20 per cent below the $80 a barrel mark, the International Energy Agency predicted that about a quarter of the Canadian producers needed to turn in a profit if they wished to stabilize the CAD.
  2. Unemployment – Economists have noted that it is not only the reduction in oil prices, but also the high unemployment rates that have affected the Canadian dollar. The labour market has been said to have lost over 9,000 jobs since June this year. This officially pushes the rate of unemployment up by 7.1%. Only 6 out of 16 sectors reported higher payrolls. This development comes despite their being a rise in full-time hiring. In addition to the construction sectors of the labour market, those at the manufacturing unit also suffered losses. The resultant leads to a severe decrease in momentum as far as providing jobs are concerned. Economists apprehend that with the fall in oil prices, the labour market might see a further depreciation.

Consequences

Following the fall in the Canadian government bonds, the Bank of Canada has been compelled to release a statement that predicts a further drop in 2015. While the dollar stabilized over the week after the initial slump, the Bank has not ruled out a further depreciation. In fact, the lack of exporters as regards crude oil indicates that a full financial recovery is a good two years away. The Canadian economy could weaken further as the CAD/USD exchange rate is expected to fall to $1.18 in 2015. This could further slow the economic growth by as much as one-third of a percentage point. Coming at a time when unemployment rates are at an all time high, this news could potentially shock many of the Canadian citizens.

However, the Bank has also predicted that the weaker Canadian currency could broaden the economic recovery scheme. What this implies is that there might be an increase in the number of exporters that could potentially expand the economy by 2-2.5 per cent next year. This would solve the problem of indebted customers and could potentially prevent the correction in a housing market that is currently over-valued by 10-30 per cent.

Overall, however, the scenario in the global oil market has sapped the Canadian economy. Financial experts across the country are apprehensive of the year 2015 since they predict a further depreciation. Despite the marginal benefits of the weaker, the Canadian Dollar continues to be a major cause for concern in the country.

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