What Do Oil Prices Tell Us About The Global Economy?
Oil prices aren’t everything in economics, but they can be a useful indicator for the broader economy. Oil is, in part, a growth commodity — one that can be used to make other commodities more valuable. Oil and its derivates power vehicles that we use to turn crops into food, planes, and ships that transfer that food to markets, where people use gasoline to get to the store and drive home. Manufacturing, infrastructure, food; these are all, to some degree or another, dependent on oil. This excerpt from a VisualCapitalist[i] report illustrates the problem we find ourselves in:
(Source: VisualCapitalist)
Or we could take a look at Statista’s report[ii]:
“The coronavirus outbreak has sent U.S. oil prices tumbling to their lowest level for two decades. With much of the world on lockdown, fleets of airliners have been grounded while cars are parked up, resulting in a lack of demand. That has in turn led to a glut of oil that’s clogging up storage facilities, further impacting the price.”
While oil prices might not indicate economic catastrophe, that doesn’t mean investors have nothing to be worried about. Yes, oil prices do not correlate as strongly with growth as copper does, for instance, but we still saw a fairly high correlation between growth and oil prices, as we can see in this chart below:
(Source: Bowyer Research)
We’re in a situation in which the economic shutdown has propelled oil prices down significantly. Yes, this situation is unique, and yes, low oil prices do not necessarily indicate future economic catastrophe. But investors are not necessarily unfounded in their fears that an unprecedented drop in oil prices could indicate weak market conditions and future economic problems.
[i] VisualCapitalist, How Oil Prices Went Subzero, April 2020
[ii] Statista, U.S. Oil Price Collapses To Lowest Level Since 1999, April 2020
Originally published on Townhall Finance.
Charles is a political risk analyst for Bowyer Research, has been published on Affluent Investor, RealClearMarkets, RealClearPolitics, Asia Times, and has been a guest on The Glen Meakem Radio Program.
Trending Now on Affluent Christian Investor
Sorry. No data so far.
Right Report
Follow Us
The Affluent Mix
Letter On The Politicization Of Corporations... July 26, 2021 | Jerry Bowyer
Peak Of The Fake Bull Market July 26, 2021 | Michael Pento
Woodrow Wilson’s Administrative State vs. Gold... July 26, 2021 | Jim Huntzinger
Dividends, Energy, And Crypto July 26, 2021 | David Bahnsen
Whose Side Are You On? July 26, 2021 | Frank Vernuccio
Media, Left Ignore These Dangers July 19, 2021 | Frank Vernuccio
Mark Skousen On FreedomFest And How To Measure The Whole Economy... July 19, 2021 | Jerry Bowyer
Quantifying The Quantitative, Or Making Easy The Easing... July 19, 2021 | David Bahnsen
The Gold Standard Means A Rising Standard Of Living... July 19, 2021 | Jim Huntzinger
Book Review: Brian Domitrovic Reveals The Monetary Genius Of Arthur Laffer... July 19, 2021 | John Tamny
Steve Forbes: Time To Worry About Inflation, Not Hyperinflation... July 12, 2021 | Jerry Bowyer
UFOs Rescue Biden July 12, 2021 | Frank Vernuccio
Read This Classical Economist’s 200 Year Old Warning About Paper Money... July 12, 2021 | Jim Huntzinger
How Central Banks Murdered The Markets July 12, 2021 | Michael Pento
Everything There Is To Know About The Stock Market... July 12, 2021 | David Bahnsen
AT&T CEO: We’re Ill Equipped For Politics, And We’re Spending A Lot Of ... July 6, 2021 | Jerry Bowyer
Internet Bias Distorts National Conversation... July 6, 2021 | Frank Vernuccio
The Halfway Point Of 2021 July 6, 2021 | David Bahnsen
Milton Friedman’s Flaw July 6, 2021 | Jim Huntzinger
Our Problem Is Cultural And No Election Can Heal It... June 29, 2021 | Frank Vernuccio
Os Guinness On The Left’s Long March From Counterculture To Oligarchy... June 29, 2021 | Jerry Bowyer
The Crushing Loss Of The Gold Standard June 29, 2021 | Jim Huntzinger
Join the conversation!
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse.