Why Crude Oil Inventories Matter To The
Global Economy ?
Oil
inventories play a major role in determining oil prices. Oil inventories take
into consideration the supply and demand to determine the oil prices. The
fundamentals of an economy are directly affected by a rise or fall in the price
of crude oil. Therefore, it would not be wrong to say that the flow of crude
inventory has a direct impact on the crude oil price and the global economy.
The
U.S. Energy Information Administration (EIA) releases weekly data on crude oil
inventory. This report gives detail about the changes in the strategic
petroleum reserve of the US in comparison to the prior week. If the stockpile
of crude inventory is low and demand is steady, the crude price may rise. While
if the stockpile of crude inventory is high and demand is low, the crude price
may fall.
In
this article, we list some of the impacts of crude oil inventories on the
global economy.
How Crude Oil Inventories Affect Global
Economy
· For a country like India that imports the majority
of its crude oil requirements, the oil inventories have a big impact. When
there is a rise in crude oil price, it adversely affects the fiscal deficit of
India and vice versa. Fiscal deficit means that the government has to borrow
money to meet its expenses. Therefore, crude inventories are critical to
determining the impact on the fiscal deficit.
· The rise or fall in crude oil has a direct
impact on the currency. Crude oil prices at higher levels lead to the deprecation
of the rupee and vice versa. The fall in the INR has a negative impact on the
Indian economy and the stock market.
Also read - What You Should Know About Crude Oil Inventory?
· Oil is an essential commodity and it is used to
meet industrial as well as commercial fuel requirements. Industries use fuel as
their raw material and it forms a major part of their costs. When the crude
inventories fall and oil price rises, it increases the cost of manufacturing.
This high cost is then transferred to the consumers resulting in higher inflation.
It is said that an increase of $10 per barrel leads to a rise in inflation by
0.1%.
· Oil inventories affect the crude oil prices
which in turn affect the prices of shares in the stock market that depend on
it. A rise in the price of crude oil leads to higher costs for airlines,
logistics, footwear and many other companies. While oil exploration companies
may benefit from it. The rise in crude price also leads to a sell-off in small-cap
and mid-cap stocks. Thus, crude inventories have a direct impact on the stock
market of a country.
The
above mentioned are some of the impacts of oil inventories on the global
economy. Oil inventories are very critical to the fundamentals of a country. It
is a demand and supply game that determines the rise and fall of crude oil
prices. No country can remain unaffected by the changes in crude oil prices.
Therefore, if you are monitoring the stock market or the growth of an economy,
you must always consider the prices of crude oil and crude oil inventories.