Unit 3 · Level 3 · Commodities & gold
Oil → everything
Oil is not a single product. It hides inside almost everything you buy: diesel moves the trucks, jet fuel the planes, naphtha becomes plastics, and natural gas makes the fertilizer that grows the food. When oil hit $147 in 2008, costs rose almost everywhere at once. Big oil spikes preceded the recessions of 1974, 1980, 1990 and 2008. Energy is the closest thing the world has to a universal tax.
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What you get asked
Why does an oil spike raise the price of bread?
The wheat is fertilized (natural gas), harvested (diesel), transported (diesel) and baked (energy). Energy hides in nearly every price you pay.
Energy is roughly 8% of a factory's total costs. Energy prices double while everything else stays flat. By roughly what % do total costs rise?
The 8% slice doubles to 16% of the old total, so costs rise by 8%. Small input share, big macro punch. Now multiply that across every firm at once.
Big oil spikes came before the recessions of 1974, 1980, 1990 and ___.
Oil touched $147 in mid-2008 before the crash. Correlation isn't destiny, but oil spikes have a dark habit of showing up before downturns.
Match each oil product to what it makes expensive
One barrel, many disguises. That's why an energy shock reads as inflation nearly everywhere on the CPI basket at once.
For households, a big oil spike works like:
Fuel and heating aren't optional, so the money comes out of everything else, squeezing demand while pushing inflation up. Watch the oil price like the pros do. 🐜
The rest of this unit
Oil, gas, copper, gold: the real stuff that feeds inflation and humbles forecasters.