When there is a spike in oil prices, home businesses and small businesses can be affected in several ways: increased Operating Costs: Higher oil prices typically lead to increased costs for transportation, heating, and electricity. Small businesses that rely on transporting goods or providing services may face higher fuel costs, which can impact their profitability. Additionally, businesses operating from home that rely on electricity for production or services may experience increased energy costs.
Rising Input Costs: Many small businesses rely on oil-derived products, such as plastics, chemicals, or packaging materials. When the price of oil rises, the cost of these inputs also tends to increase. This can lead to higher production costs and reduced profit margins for small businesses.
Home businesses and small businesses often have limited resources and flexibility to absorb sudden changes in costs. However, some businesses may be able to adapt and adjust their operations to mitigate the effects of oil price spikes. For example, businesses may explore alternative energy sources, optimize transportation logistics, or innovate to reduce their reliance on oil-based inputs.
It is important to note that the impact of oil price spikes on home businesses and small businesses can vary depending on the industry, location, and specific circumstances of each business. Additionally, the duration and severity of the oil price spike will also play a significant role in determining the overall impact on businesses.
The following is a general overview of crude oil prices over the past few years
- 2017: In 2017, crude oil prices began the year relatively low, with Brent crude oil averaging around $54 per barrel and West Texas Intermediate (WTI) crude oil averaging around $50 per barrel. Prices gradually increased throughout the year due to a combination of factors, including OPEC-led production cuts and improving global demand. By the end of the year, Brent crude oil price reached an average of around $55 per barrel, while WTI crude oil averaged around $51 per barrel.
- 2018: Crude oil prices saw significant volatility in 2018. The year started with strong upward momentum, with Brent crude oil reaching around $70 per barrel and WTI crude oil approaching $65 per barrel by May. However, prices started to decline in the latter half of the year amid concerns of oversupply and slowing global economic growth. By the end of the year, Brent crude oil averaged around $71 per barrel, while WTI crude oil averaged around $65 per barrel.
- 2019: Crude oil prices faced several uncertainties in 2019, including geopolitical tensions and concerns about global economic growth. Prices experienced volatility throughout the year, with Brent crude oil ranging from around $50 to $75 per barrel, and WTI crude oil ranging from around $45 to $65 per barrel. By the end of 2019, Brent crude oil averaged around $64 per barrel, while WTI crude oil averaged around $57 per barrel.
- 2020: The COVID-19 pandemic had a significant impact on crude oil prices in 2020. As countries implemented lockdowns and travel restrictions to contain the spread of the virus, global oil demand plummeted. This led to a drastic drop in crude oil prices, with Brent crude oil falling to historic lows of below $20 per barrel in April 2020, while WTI crude oil even briefly traded in negative territory. Prices gradually recovered over the year as economies reopened and demand picked up but remained lower compared to previous years. By the end of 2020, Brent crude oil averaged around $42 per barrel, while WTI crude oil averaged around $39 per barrel.
- 2021: Crude oil prices in 2021 have seen a rebound from the lows of 2020. Prices have been influenced by factors such as COVID-19 vaccine distribution, OPEC+ production agreements, and broader economic recovery. As of August 2021, Brent crude oil has averaged around $66 per barrel, while WTI crude oil has averaged around $62 per barrel.
It’s important to note that crude oil prices can be influenced by various factors, including global supply and demand dynamics, geopolitical events, and market sentiment. Prices will continue to fluctuate based on these factors in the coming years.
Political landscape
Political unrest can have a significant impact on crude oil prices. Here are a few ways in which political unrest can affect oil prices:
- Supply Disruptions: Political unrest in oil-producing regions can disrupt oil production and supply chains. Protests, civil conflict, or political instability can lead to the shutdown or reduced output of oil wells, refineries, pipelines, or ports. Any disruption in supply can constrain the global oil market and push prices higher.
- Geopolitical Tensions: Political conflicts and tensions between countries can also affect oil prices. For example, if there is a threat of military action or trade sanctions targeting major oil-producing nations, it can create uncertainty and fear of supply disruptions, leading to increased oil prices.
- Change in Government Policies: Political unrest can result in changes in government policies related to oil production, exports, or energy sector regulations. These policy shifts can impact the production capacity, investment climate, or trading relationships of oil-producing countries. Uncertainty around such policy changes can influence oil prices.
- Global Sentiment and Risk Appetite: Political unrest, especially if it occurs in major oil-producing or oil-consuming regions, can create market sentiment and risk aversion. Investors might perceive higher geopolitical risks, leading to increased oil prices as a safe-haven asset. Similarly, concerns about the stability of oil supply can influence market sentiment, leading to higher oil prices.
Examples of how political unrest has impacted oil prices include the Arab Spring in 2011, which resulted in supply disruptions from oil-producing countries like Libya, Egypt, and Syria, leading to increased oil prices. In more recent years, the tension between the United States and Iran, conflicts in Iraq and Nigeria, or political crises in Venezuela have all had impacts on oil prices.
It’s important to note that political unrest is just one among many factors that can influence oil prices. The overall supply-demand dynamics, economic conditions, and other market forces also play a significant role. Moreover, the duration and severity of political unrest can vary, leading to varying impacts on oil prices.
