Based on its level of importance, oil is what they call a "black gold". This is because oil is highly important in most industries. To start with, oil is used as fuel or energy source for automotive engines, which are used for transportation. This explains why a rising oil price can also cause other commodity prices to surge. Delivery of goods and services are affected by higher oil price.
Oil price may also determine cost of operations. Machineries or other equipment that run on fuel or oil may be more costly to maintain if the oil price is high. Cost of construction and other basic goods have experienced big price adjustments simply because of the oil price that continue to rise in today's market. Considering its essential use, changes in oil price may affect the global economy.
Effects of Oil Price Hikes
To date, the Middle East is one of the largest suppliers and exporters of oil. Just recently, there has been a continuous round of oil price hikes in the world market brought about by security and supply issues in oil producing countries. Major industries in different countries depend on oil supply coming from the Middle East. That's why for quite some time, others refer to oil as some sort of a "lifeline."
Because of the unabated increases in oil price, the cost of food and other basic commodities also went up. Following this is the shortage in food supply and the rising costs of basic commodities in other countries. This affects not only food production or transportation but the global economy on a wider scale. Cost of living is also higher than before as a result of current economic trends resulting from oil price movements.
What Affects the Oil Price
As with other types of commodity, the law of supply and demand may influence changes in oil price. As more industries depend on the use of oil, there is higher demand, which also influence the rate of the oil price. Unfortunately, oil producers have to deal with securities issues on top of the increased need for oil supply, resulting in oil price hike.
Different countries are more concerned on the issue of the rising oil price. World leaders and government agencies are trying their best to find an alternative source of fuel or oil as an oil price hike solution. Others are trying to explore the idea behind biofuels, although it may take some time before this concept may be generally used or accepted.