Hey everyone!
Today, let’s learn about how much oil impacts our lives and the economy in a fun way with me!
When you hear “oil,” you might think, “Huh? That sounds hard…” but it’s not difficult at all!
I’ll explain it in a simple and energetic way, so be sure to stick around till the end!
1. Oil’s Impact on the Economy
First of all, oil is something we can’t live without!
For example, the gasoline we need for driving, the jet fuel for airplanes, and even the plastic products we use every day—all of these involve oil!
Just imagine how tough life would be without oil!
Not only that, but when the price of oil changes, the price of things we buy can change too!
For companies involved in transportation, like those using trucks or airplanes, the higher the fuel cost, the more expensive the products sold in stores become.
For instance, when oil becomes more expensive, the price of gasoline goes up, and so do the costs of traveling!
Ugh, that would be a bit of a problem, wouldn’t it?
On the other hand, countries that sell a lot of oil, like Saudi Arabia and Russia, make a huge profit when oil prices are high!
That’s why the price of oil has a massive effect on the economy worldwide.
2. Why Do Oil Prices Change?
Next, I’ll explain why oil prices change!
There are several reasons, but don’t worry—I’ll make it easy to understand!
2-1. Supply and Demand Balance
First, the basics! It’s all about “supply and demand.”
When everyone wants oil, and there’s not enough supply, the price goes up.
For example, when the economy is doing well, factories run a lot, and there are more cars on the road, so the demand for oil keeps rising!
But if the supply can’t keep up… yep, prices shoot up.
On the other hand, when the economy isn’t doing well, demand decreases, so prices can go down.
For example, during the COVID-19 lockdowns, demand for oil dropped drastically, and so did its price!
2-2. Geopolitical Risks
Next up is something a bit more complicated—geopolitical risks!
If there’s a conflict or war in the Middle East, where a lot of oil comes from, the supply could be interrupted.
When that happens, people start saying, “I’ll pay more—just give me oil!” And prices start to rise quickly.
The first oil crisis in 1973 happened because of this kind of geopolitical risk, causing oil prices to skyrocket!
It led to an energy crisis around the world—it was a tough time!
2-3. The Influence of OPEC
Have you heard of OPEC?
It’s a group of countries that export oil, and they control the production levels.
When oil prices drop too much, OPEC can decide, “Okay, let’s cut production!” to raise prices.
For example, in 2016, there was an oversupply of oil, and prices were really low. But then OPEC decided to cut production, and prices gradually recovered.
There’s always a strategy behind oil prices!
2-4. Exchange Rates
Since oil is usually traded in U.S. dollars, exchange rates also play a role.
When the dollar gets stronger, oil feels more expensive to countries that use other currencies, and demand can decrease.
So the value of the dollar is another factor that affects oil prices!
2-5. Technological Innovation
Finally, technological advancements can also influence oil prices!
Have you heard of the shale revolution in the U.S.?
Thanks to new technologies, the U.S. started producing a lot of shale oil, which used to be hard to extract.
This caused a surge in supply, which led to lower prices!
3. Historical Oil Price Changes
Now that you understand what influences oil prices, let’s take a look at some historical events that impacted oil prices!
3-1. The First Oil Shock (1973)
Arab countries restricted oil supplies in response to the war with Israel, causing oil prices to skyrocket and leading to a global gasoline shortage.
3-2. The Second Oil Shock (1979)
This time, the Iranian Revolution drastically reduced oil supply.
Then, the Iran-Iraq war further cut supply, causing another sharp rise in prices!
The energy shortage caused serious problems around the world.
3-3. The Shale Revolution and Price Decline (Since 2014)
As I mentioned earlier, the U.S. dramatically increased oil production thanks to the shale revolution, leading to an oversupply and a drop in prices.
The oil market has never been the same since this revolution!
4. Conclusion
Oil is incredibly important for both our lives and the economy!
The way its price changes affects everything from our cost of living to the national economy.
So, it’s important to keep an eye on oil trends moving forward!
What do you think? Did you learn something new about oil?
Let’s keep learning together in the future!
(Note)
Hey everyone! This text is an answer from an AI!
But remember, AI answers aren’t always 100% correct, so please double-check important information! Thanks for your understanding!
Oh, and there’s support available too! If you’re interested, be sure to check them out!
Thanks for reading today!
