Visualizing How Plunging Oil Prices Affect Currencies
Every day, the world consumes 93 million barrels of oil, which is worth $4.2 billion.
Oil is one of the world’s most basic necessities. At least for now, all modern countries rely on oil and its derivatives as the backbone of their economies. However, the price of oil can have significant swings.These changes in price can have profound implications depending on whether an economy is a net importer or net exporter of crude.
Net exporters, countries that sell more oil abroad than they bring in, feel the sting when prices plunge. Less revenue gets generated, and this can impact everything from balancing the budget to the value of their currency in the world market.
Net importers, on the other hand, benefit from lower prices as it decreases input costs for production. For example, a country like Japan only meets 15% of its energy needs domestically, and must import 3.5 million barrels of oil each day. A lower oil price significantly decreases these costs.
For many major net exporters of oil, changes in oil prices are highly correlated with their currencies. With oil prices crashing over the last year, currencies such as the Canadian dollar and Russian ruble have been highly impacted in terms of USD. But the impact of oil on currency depends on how central banks approach to policy.