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Shifting Oil Prices

|Includes: BLKPF, BP p.l.c. (BP), PRSAF, RDS.A

How does shifting Oil prices affect inflation?

This is a question that you may often come across when reading the business newspaper. As there is always at least one article mentioning either - increasing or decreasing oil prices - I think that it may be more than convenient for you to learn the consequences of such price variations.

Normally when we talk about the consequences of shifting oil prices, we often choose to talk about direct consequences and consequences of more delayed nature.

One direct consequence of increasing oil prices, is of course the increase in oil related products such as fuel and fuel oil. If the oil prices increases then it will become more expensive to buy fuel and other oil related products. As these are often components included in the calculations of inflation, the increase in oil prices will lead to an increase in inflation.

The delayed consequences are more difficult to calculate, as they are more dependent on the actions of corporations. Higher fuel costs leads to higher transportation costs which naturally lead to higher prices, as corporations need to compensate for their increase in costs. Higher oil prices also increases the heating costs which also demand actions from Corporations, which often results into higher price levels in the economy.

How to act on shifting oil prices: An indication of higher oil prices would normally have more positive effects on oil companies, while having the opposite effect on the rest of the companies. As increasing oil prices often lead to higher revenue for oil companies, and higher costs for other companies. However, of course it is also important to differ between companies, as companies in the industry sector may encounter higher costs involved with shifts in oil prices than services based companies, as the former ones are often more exposed towards transportation costs than the latter ones.