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Oil & You: Why do oil prices have such a big impact on the world?

on Aug 5, 2021

Whether or not we realise it, most of us have felt the effects of world oil prices directly. There are obvious consequences such as petrol prices for our vehicles but also seemingly unconnected things such as fluctuations in our tech stocks portfolio. Money lending companies in Singapore have seen both sides of this coin.

 

If you plan to invest in stocks or commodities, buy a car, or even get a loan from a legal money lender, you should understand the connection between oil prices and the world economy. Armed with the right knowledge, you could save money, pay back loans from a private money lender in Singapore, and live a more comfortable financial life. 

The Major Players

To fully understand the ‘why’, we must first know the ‘who’. The two most influential entities in the world of oil prices are OPEC and the United States of America. 

OPEC

As its name suggests, the Organisation of Petroleum Exporting Countries (OPEC) is an association of nations that drill enough petroleum to be able to export it. OPEC meets regularly to discuss how much of that resource to produce. The supply and demand equation they consider determines oil prices and, consequently, the revenue it generates.

 

Observers describe OPEC as a ‘cartel’ because of the disproportionately large influence its decisions have on the world. The 1973-74 oil embargo imposed by OPEC caused the price of oil to quadruple. Similar decisions to increase output, often based more on geopolitical rivalries rather than economics, have caused oil prices to see-saw as recently as March 2020.

The USA

The United States is one of the countries that does produce its own petroleum but not enough to completely satisfy domestic demand. As the world’s largest economy, their national drilling policies have repercussions beyond their borders.

 

President Biden’s decision to cancel the Keystone Pipeline almost immediately after the 2020 elections has had catastrophic effects on the US economy. Not only have gas prices shot to 7-year peaks, but the costs of basic necessities that rely on cross-country transportation have skyrocketed, too. As a result, US inflation in July 2021 is at its highest in 15 years

 

Since the US is the world’s largest economy, these parameters have a trickledown effect on the rest of the world, including Singapore.

The Domino Effect

While most people are familiar with petrol and diesel for road vehicles and kerosene for aircraft fuel, petroleum and its by-products are used in a much wider range of objects. 

Plastics

Everything made of plastic around you, from the keyboard and mouse to the air conditioner and fan to the molding in your car and the syringes for your vaccine, comes from petroleum. The signboard of any money lending company in Singapore as well as the ballpoint pen you use to sign the contract are made of plastic.

Agriculture

Fuel for farming vehicles such as tractors and harvesters aside, petroleum derivatives are also used to create lubricants for machine maintenance. They are essential to the production of ammonia, which is the critical component of fertilisers.

Cosmetics and pharmacy products

Surprisingly, the viscous black liquid of crude oil with its stinging smell is the genesis of virtually all cosmetics and perfumes. Medical pill capsules, oils, and ointments, as well as the most common prescription and over-the-counter drugs are all made of petrochemicals.

Synthetic Rubber

Today, the volume of synthetic rubber produced annually is double that of natural rubber. This synthetic alternative is used in hoses and cables for electrical products and vehicles, as well as belts for machinery because of its longevity. 

 

This is just a small sample of the thousands of types of products that are affected by oil prices. In fact, a simple trip to the office of your local legal money lender would be impossible without petroleum products. The office of any private money lender in Singapore itself would not exist without them.

 

Petroleum forms part of an international interconnected economy just as all other resources do. However, its outsize influence is a testament to how widely its by-products are used in everyday objects, as well as the world transportation network critical to the world economy.

 

You can put this knowledge to your advantage by investing in companies involved in the oil industry and myriad associated products. One of the easiest ways to get capital would be a loan from a reliable money lending company in Singapore. Speak to the R2D Credit financial experts for more advice on how to turn your loan into an asset.