Manifest Wealth: Research - How does Oil Move and its Impact
The following is personal research on the topic and shouldn't be taken as a financial advice. It is meant to simply educate and pass on facts as well as my opinions on the topic.
Oil prices are one of the most talked about commodity prices in the world.
Rightfully so, after all, it forms the base for many industries and even entire economies.
This research digs into the following about Oil:
Why is Oil important?
Factors that affect Oil prices
How has Oil moved in the past?
Is Oil price Stationary?
Do Oil prices move in Channels?
Predicting Oil Prices
How do Oil prices effect NIFTY?
Takeaways and Conclusion
As always you can read the takeaways at the end if you are in a hurry.
Let’s Begin!
Why is Oil Important?
Oil is an essential commodity, so much so some countries have formed entire economies around it.
But what makes Oil so important?
Well for starters it is a source of energy. It is used to produce multiple kinds of fuels ranging from those that power airplanes all the way to our cooking stoves.
It’s also used in making lubricants, wax, asphalt, chemicals and much more.
Even if you remove its use case as fuel, it is still a commodity that has purposes.
Moreover, energy requirements are crucial in today’s world, without oil people won’t have fuel to travel or electricity to run factories.
Tires require carbon black, a product of crude oil.
It’s everywhere and most if not, all countries utilise it.
Broad Value Chain:
Factors that affect Oil Prices
Supply Side:
Geo-political tensions with oil producing nations - OPEC and Russia
OPEC’s political policy is managing its crude oil production
Technological innovations
Financial conditions
Demand Side:
Strong economic growth
Increased industrial production
Transportation Needs
Seasonal needs
How has Oil moved in the past?
The WTI Oil Future prices when zoomed out look pretty stagnant don’t they?
While oil price has moved quite a bit in the past 15 years, it hasn’t moved as much as we think it did.
Oil oscillates, which makes sense since as demand for the Oil grows, and the price goes up, so does the supply which brings down the prices, and the cycle repeats.
We also saw extremely high oil prices was followed by extreme lows such as post 2007-2008 rise, we saw plummeting prices till between 2009-2010 before stabilizing.
Lastly, Oil mostly remained between $50 to $100.
Now this last line is important, why?
Because if Oil is truly doesn’t move and we can back it up data, then it has many implications!