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When Crude Oil becomes Rude Oil

Written by - Vishvender

August 9, 2018 4 minutes

Being a crazy football fan, I have been planning to write on FIFA. But the dinner table discussion between my mom and dad, made me realize there is something more important than FIFA. The month just got over. You guys might have realized it. Where are you thinking monthly salary? Sorry, but it’s not that. It’s the monthly budget which has been changed, which made me wonder, why is it happening? I am pretty sure; we all are on the same boat. So I decided to enlighten them about why is it happening and how will it affect them? By the way, the budget has got nothing to do with my FIFA tickets.

Apart from the maid, oil has a major contribution to our day to day activities. Jokes apart, right from the food we eat, the car we drive, the cream you apply, the paint that color your wall and the list goes on. It is being witnessed that, there has been a sharp increase in the oil prices. The oil which used to trade at $60 per barrel is now trading at $80 per barrel. It has been rightly said that “Tiny drops of water, makes a mighty ocean”. The analogy holds true for the monthly budget as well.

                                      Oil prices from Aug 2017 to July 2018

Why is the oil price rising? I am happy to say that, Mr.Modi has got no play in this. Having said that, it’s Mr. Trump who has pulled out the Iran nuclear deal, which prohibits Iran from exporting oil to different countries. Iran has a lion’s share in supplying oil to the world. Due to the cancellation of the deal, the supply of oil has decreased. Due to this, we have seen the oil price to roar. There are some other reasons as well, but the one we discussed is the major one.

How is the price going to affect my household expenses?
To be honest, oil is a blessing in disguise. It is used in a majority of the products.
The picture speaks louder than words. If the oil price is increasing, all these products will get a bit expensive and you may see a temporary hike in your monthly budget.

                                        Usage of oil products in household

How is the price going to affect my investments?
The increase in oil price has caused depreciation in the value of rupees and accordingly appreciation in the value of dollars. This causes an increase in the price of the bond, which results in a lesser yield from the bond. Apart from bonds, the stock price of the company will also get affected. The increase in price will result in lesser profit and hence lesser returns. Yes, mutual funds to the rescue. Invest in mutual funds and decrease the losses considerably.

How is the price going to affect my business?
If your company deals in tires, plastics, chemicals, fertilizers, wax industries, refining, airline, paints, footwear, lubricants, cement, logistics, and construction material for whom crude or its derivatives are major inputs/costs will take a hit on their margins.

How is the price going to affect my daily commute?
Daily commute can be a bit expensive due to the increase in the price of petrol and diesel. Apart from that, some other automobile equipment can also appreciate to some extent.

                                         Usage of oil products in automobiles

To be honest, oil price does fluctuate. It has happened before and it is happening now. It is a game of supply and demand. But the market always brings equilibrium. The prices are high today. But expect them to fall in near future. It is just a momentary situation. Stay invested. Stay safe.

Happy Investing!

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