The BBC Report on 7/14/09

In their report on FOOD, they touched on the price and link to oil
I have heard few reports putting the impact of $147/ barrel oil in detail.
Since they grazed over oil in your food report, I will continue in the context of FOOD.
At it‘s peak, $147 per barrel was more than three times the price in Fall 2006 when Hurricane Katrina hit the USA. Speculation by the Mercantile Exchange and the Media sent prices soaring in the US based on the “fear-mongering” about possible shortages and people at the “merc.” got rich overnight. This was followed by the promotion of the idea of $100 per barrel oil and then $150 per barrel oil.

So here’s some of the impact $147 per barrel oil had on FOOD;

• Gas and Diesel for transportation
  
• Gas and Diesel for Farming and Harvesting equipment
  
• Oil for heat I factories, farming, homes, etc.
  
• Lubrication of machines and equipment
  
• Fertilizer, insecticides, cleaning agents
  
• Plastic packaging
  
• Tires

And more
There are more than 4,000 different petrochemical products, that means more than 4000 different products that tripled in cost when Crude Oil hit $147 per barrel.

Those which are considered as basic products include ethylene, propylene, butadiene, benzene, ammonia and methanol. The main groups of petrochemical end-products are plastics, synthetic fibres, synthetic rubbers, detergents and chemical fertilisers. Other useful products which are not fuels can also be manufactured by refining crude oil, such as lubricants and asphalt (used in paving roads). A range of sub-items like perfumes and insecticides are also ultimately derived from crude oil.

A barrel of oil yields these refined products (percent of barrel):

• 47% gasoline for use in automobiles
  
• 23% heating oil and diesel fuel
  
• 18% other products, which includes petrochemical feedstock — products derived from petroleum principally for the manufacturing of chemicals, synthetic rubber and plastics
  
• 10% jet fuel
  
• 4% propane
  
• 3% asphalt

(Percentages equal more than 100 because of an approximately 5% processing gain from refining.)

The most common products from petroleum are energy products: gasoline, heating oil, and diesel fuel. Other petroleum products are: ink, crayons, bubble gum, dishwashing liquids, deodorant, eyeglasses, records, tires, ammonia, and heart valves.


So, the tripling of crude oil impacted almost everything in our economy, especially our family budgets.

All businesses in the World had expenses triple in cost and what did they do? They cut jobs and pay instead of demanding higher prices for their services and passing on a 40% cost-of-living to their employees.

Families were forced by the cost-of-living increase to cut back and/or spend on credit, stopping the cash flow to businesses and then the banks. Many finally were forced to file bankruptcy.
Hence, the collapse of the World economy over a 2 year period, starting after Hurricane Katrina hit the USA in the Fall of 2006.

So, do you see the connection of the price of crude oil to the Global Financial Crisis now?