Oil prices rose during trading on Monday, December 23, 2024, as Brent crude recorded $ 73.30 a barrel, while US crude contracts rose by 0.6% to $ 69.88 a barrel. The rise came after U.S. data revealed slowing inflation, raising hopes that central banks around the world will pursue a more accommodative monetary policy next year. The news supported oil prices, which suffered a decline last week on concerns about global economic growth, as well as signals from the US Federal Reserve to be cautious about further easing monetary policy.
Meanwhile, concerns about falling European supplies eased after news that the Druzhba pipeline, which transports oil from Russia and Kazakhstan to several European countries such as Hungary, Slovakia, the Czech Republic and Germany, has restarted. The line was halted last Thursday due to technical problems at a Russian pumping station, but its return to work helped allay concerns about potential supply shortages.
Despite the slight rise in oil price, the market remains under the influence of fluctuations caused by economic and geopolitical factors, which contribute to the volatility of crude price. Concerns about slowing global economies and oil demand continue to weigh on sentiment, especially with the US Federal Reserve confirming caution in future monetary policy. However, investors’ hopes for further monetary easing could give an additional boost to oil price in the coming months, if inflation continues to slow and central banks adopt Fiscal policies that are more supportive of economic growth. Hence, the relationship between oil and currencies remains a complex relationship that depends on a range of economic and geopolitical factors that must be carefully monitored by investors and policymakers.
The impact of high oil prices on currencies
High oil prices are important economic factors affecting many financial markets around the world, including currency markets. The movement in oil prices causes multiple effects on the value of currencies, especially those that are directly related to oil exports or that rely on energy as a main source of revenue. For oil-importing countries, their currencies are under negative pressure when oil prices rise. Countries that rely heavily on oil imports, such as European countries and the United States, may see negative effects on their currencies if oil prices rise significantly. This rise increases the oil import bill, widening these countries’ trade deficits and putting pressure on their local currencies. In this case, the euro or the US dollar could decline due to rising inflation and market pressures.
Higher oil price also affect the monetary policies of central banks. When oil price rise, it could increase inflation in many oil-importing countries, putting pressure on the U.S. central bank or European Central Bank to raise interest rates to fight inflation. This potential interest rate increase may strengthen the value of the local currency in oil-exporting countries but may weaken currencies in importing countries due to the high cost of monetary expansion.
On the other hand, an increase in oil prices can lead to changes in trade relations between countries. For example, emerging markets can find themselves in a difficult position when trade conditions deteriorate due to higher oil prices. These changes ultimately affect the local currencies of these countries, as weak economic performance leads to capital outflows and a weakening of the currency.
The impact of high oil price on investors
The rise in oil prices is an important economic event that significantly affects the decisions of investors in various markets. Given the vital role oil plays in the global economy, its price movements could lead to significant changes in investment strategies. For investors, rising oil prices can have dual effects, providing some opportunities but also creating challenges that may affect their investments.
First, investors in energy markets are among the main beneficiaries of higher oil prices. Oil producers such as exploration and production companies, including large companies such as ExxonMobil and Chevron, typically see an increase in their profits when the price of oil rises. These companies directly benefit from increased revenues as a result of higher crude oil prices, which boosts the values of their shares and motivates investors to buy those shares. In addition, interest in renewable energy markets is growing, as rising oil prices enhance investment opportunities in alternative and renewable energy such as solar and wind, offering opportunities for investors looking to invest in more sustainable sectors.
On the other hand, for investors in other global markets, rising oil prices can be challenging, especially if the countries in which they invest heavily rely on oil imports. In this case, higher oil price increase production costs in many industries, which may reduce profit margins and lead to slower economic growth in these markets. Overall, rising oil prices are an event that significantly impacts financial markets from all directions. While it can offer investors in energy markets or oil-related currencies profit-taking opportunities, the challenges it poses to other markets may lead to greater volatility in investments.
