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Oil Strikes Back

0412_Oil

Image source: Shutterstock.com

What's going on?

Oil fever! The price of a barrel of Brent crude, the global benchmark for oil, jumped to its highest level since 2014 this week – and rumblings on Wednesday about a US-Russia faceoff in Syria helped push it even higher.

What does this mean?

The oil price has been on a fairly consistent rise since last summer as global demand for the black gold increases (typical during periods of global economic growth like we’re having now) and the powerful OPEC association of oil-producing countries continues to limit production in order to lower the total supply of oil (and thus raise its price).


Alongside a weaker dollar (making it cheaper and more attractive for other countries to buy oil) and Saudi Arabia’s stated intention to drive oil to $80 a barrel (vs. around $72 now), the threat of fresh geopolitical risks in the Middle East – which could jeopardize supply chains in the oil-rich region – has helped push up oil prices, although some are cautioning that this may only be a short-term trend.

Why should I care?

For markets: Concerns over the oil price have helped send shares in US airlines down.


Higher fuel prices are generally bad news for airlines, as they essentially face two options: swallow the higher cost of fuel themselves (hurting their profits) or raise ticket prices, potentially discouraging passengers from flying altogether. To avoid this conundrum, many airlines buy hedges that lock in the price they have to pay for fuel in the future – and stocks of airlines like United and American who stopped buying these hedges when oil prices were low are now reeling.


For you personally: Higher oil prices can show up in your daily expenses.


Higher prices mean that the amount you directly pay for energy (think: utilities, refueling your car) will increase. But you might also end up taking an indirect hit: for example, the groceries at your local store didn’t get there on their own, and someone’s going to have to pay for the more expensive transport…

 

Originally posted as part of the Finimize daily email.

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