Oil prices rose on Thursday, extending gains started the previous day, driven by optimism about U.S. fuel demand following an unexpected drop in crude and gasoline inventories. Prices were also supported by reports that the OPEC+ alliance may delay a planned increase in production levels.
Brent crude futures rose 47 cents, or 0.65%, to $73.02 a barrel by 0505 GMT, and U.S. West Texas Intermediate crude futures, which expire later in the day, gained 43 cents, or 0.63%, to $69.04 a barrel, CNBC Arabia reported.
Benchmark crude futures rose more than 2% on Wednesday, after falling more than 6% earlier in the week on the back of a reduced risk of a wider war in the Middle East. U.S. gasoline inventories unexpectedly fell in the week ended Oct. 25 to a two-year low thanks to demand growth, and crude inventories saw a surprise drop amid falling imports, the U.S. Energy Information Administration said.
Reuters reported that the OPEC+ alliance, which includes the Organization of the Petroleum Exporting Countries and allies such as Russia, could delay a planned increase in oil production in December by a month or more due to concerns about weak oil demand and rising supplies. The alliance is due to raise output by 180,000 bpd in December and has already postponed the increase from October due to lower prices.
Manufacturing activity in China, the world’s largest oil importer, expanded in October for the first time in six months, suggesting stimulus measures are beginning to bear fruit. Therefore, understanding these dynamics is essential for investors and decision-makers in the financial world.
Factors affecting oil prices globally
Oil prices are one of the most economic indicators affected by many global factors. These prices change based on a complex interaction between supply and demand, as well as political, economic, and environmental factors. One of the main factors affecting oil prices is supply and demand.
When demand for oil increases, whether due to economic growth or increased industrial activity, prices rise. Conversely, if there is a surplus in production or a decline in demand, prices may fall. Geopolitical factors also play a big role.
Oil prices are affected by political events such as armed conflicts, economic sanctions, and tensions between oil-producing countries. For example, any turmoil in the Middle East, a major oil production hub, could lead to a significant increase in prices.
Also, the policies of OPEC (Organization of the Petroleum Exporting Countries) directly affect prices. When OPEC decides to cut production, it aims to support prices, while increased production may lead to lower prices.
Technological advances in oil extraction, such as horizontal drilling and hydraulic fracturing techniques, are changing the landscape. These technologies may increase supply from countries such as the United States, affecting global prices.
Moreover, global economic factors such as interest rates, currency fluctuations, and financial crises also affect oil prices. A stronger U.S. dollar, for example, makes oil more expensive for other countries, which can lead to lower demand. Oil prices are the product of a complex interplay between many factors, making them difficult to predict accurately.
Understanding these prices requires a careful analysis of global economic and political contexts, reflecting the importance of oil as a strategic commodity in the global economy.
The impact of high oil prices on financial markets
The rise in oil prices significantly affects financial markets, as oil is one of the most important commodities that play a major role in the global economy. When oil prices rise, this increase can cause multiple impacts on various financial sectors.
First, high oil prices affect production and transportation costs, which in turn affects companies’ profit margins. Industries that rely heavily on oil such as transportation and energy face significant challenges, as operating costs increase. This can lead to a decline in profits, which may reflect negatively on the share prices of those companies, and thus affect public financial indicators.
Moreover, an increase in oil prices can lead to higher inflation. When energy costs rise, prices begin to rise across supply chains, affecting consumers’ purchasing power. Rising inflation may lead to interest rate hikes by central banks to fight inflation, increasing borrowing costs and pushing financial markets lower.
Financial markets are also affected by changes in capital flows. Higher oil prices may lead to increased investments in oil-producing countries, boosting their financial markets. At the same time, price hikes may prompt investors to reassess their investments in other markets, especially in countries that suffer negative effects from higher oil prices, such as oil-importing countries.
Also, geopolitical tensions associated with oil prices can affect the stability of financial markets. Disputes in major oil-producing areas can lead to sharp price fluctuations, increasing market uncertainty. This tension may prompt investors to make cautious decisions, contributing to additional price fluctuations.
Higher oil prices are a powerful influence on financial markets, affecting production costs, inflation, capital flows, and geopolitical stability.