Global oil prices are one of the important economic factors that directly affect the global economy, as oil is one of the most traded and important commodities in the financial markets. On Friday, August 23, 2024, oil prices rose significantly despite recent economic data from China, the world’s largest oil importer. These data indicated a slowdown in the Chinese economy and a decline in oil demand, it was expected to lead to lower oil prices. On the contrary, prices showed a rise that reflects other factors affecting the market. According to a report by the Egyptian Ministry of Petroleum and Mineral Resources, Brent crude, the global benchmark, recorded a price of $77.34 per barrel, while US West Texas Intermediate crude recorded $73.10 per barrel, and OPEC crude reached $77.03 per barrel. These price hikes come amid a decline in global oil inventories over the past two months, leading some analysts to predict that oil prices could rise further in the past weeks. Coming. One of the main factors affecting oil price is global supply and demand. Falling global oil inventories indicate increased demand or a decrease in production, both of which lead to higher prices. In the current situation, global inventories appear to be declining despite China’s economic slowdown. This discrepancy reflects the complexities of the global oil market, where many factors interact to determine prices. On the other hand, geopolitical tension plays a large role in determining oil price. The Middle East, home to some of the world’s largest oil producers, is often the scene of political tensions that can affect oil supplies. Any threat to supplies from this region could lead to a rise in oil price, even if global demand is weak.
OPEC’s role in determining global oil price
A vital role in determining global oil price is played by the Organization of the Petroleum Exporting Countries (OPEC), a grouping of oil-producing countries seeking to coordinate their oil policies to ensure market stability and balance supply and demand. OPEC accounts for a large part of global oil production, giving it a significant impact on global prices by controlling production levels. One of the main tools that OPEC uses to influence oil prices is to set production quotas for each member country. When OPEC wants to raise prices, it can reduce production, reducing supply in the market and driving prices up. Conversely, if prices are excessively high or if the global economy is slowing, OPEC can increase production to ease pressure on prices. This ability to control production gives OPEC Direct on prices. In addition to controlling production, OPEC plays a role in guiding the market’s future outlook. Statements and statements from OPEC can affect market sentiment and guide expectations about future prices. For example, if OPEC signals expectations of increased oil demand in the future, it could lead to higher prices for the time being, as traders adjust their strategies based on these forecasts1>. Also, OPEC plays a role in interacting with non-OPEC countries that produce oil. Over the years, OPEC has worked with these countries, like Russia, through what is known as OPEC+ to regulate production levels in a collective manner. This coordination increases OPEC’s ability to influence prices because it encompasses a wider range of producing countries. However, OPEC’s impact on prices is not absolute.
How High Oil Prices Affect Currencies and Markets
Rising oil price have a wide-ranging impact on currencies and global financial markets. Since oil is one of the staples in the global economy, its price changes lead to significant repercussions on many economic and financial aspects. When oil prices rise, multiple effects begin to emerge, affecting currencies, stock markets, monetary policies, and corporate performance. First, it is important to understand how rising oil prices affect currencies. Countries that are major oil importers usually experience a depreciation in the value of their currencies when oil prices rise. The reason for this is that these countries need to spend more of their local currencies to buy the same amount of oil, which increases the trade deficit and weakens the currency. For example, if oil prices rise significantly, countries like Japan and India Those that import large amounts of oil may face pressure on their local currencies. In contrast, countries that rely heavily on oil exports, such as Canada and Russia, may see their currencies devalue when oil prices rise, as demand for their currencies to buy oil increases. As for financial markets, higher oil prices can have mixed effects. On the one hand, companies that rely on oil as a raw material or as fuel for their operations may face an increase in production costs, which could lead to a decrease in profit margins. Airlines, for example, may be particularly hit by higher oil prices, as fuel makes up a large part of their operating costs. This may lead to lower share prices of these companies in the financial markets.
