Does the price of a barrel of oil really affect your life and investments?

You wake up every morning to the headline-grabbing news of "oil prices". Perhaps you wonder: "Why should I care about this number? How does the price of one barrel of Brent really affect my TASI portfolio? What does it have to do with my monthly budget or the price of gasoline?" You may feel that the oil market is complicated and reserved for experts, and that these global numbers are far removed from your reality.

This article is your answer. Whether you're an investor in the Saudi market, an entrepreneur following the economy, or a citizen seeking to understand the forces shaping the Kingdom's future and Vision 2030, it's tailor-made for you. This comprehensive guide demystifies the "black gold". We take you step-by-step from the basics (what is oil?) to advanced analysis (how do OPEC+ decisions affect Aramco shares?), giving you a complete understanding that connects the global numbers to your immediate daily life in Saudi Arabia.

Oil prices: The complete guide to understanding the impact of "black gold" on the Saudi market and economy

is a Oilis more than just a commodity to be bought and sold on global markets. It is the engine of the global economy, the lifeblood of industries, and a decisive factor in shaping international geopolitics. For Saudi Arabia, oil is doubly important; it is not only a major source of income, it is an integral part of the economic and social fabric, and the pillar on which the country's ambitions are built Vision 2030 Toward a diverse and prosperous future.

In this comprehensive guide, we dive deep into the world of oil. From the basics, such as "What is oil?" and how it's extracted and manufactured, to the complex factors that drive Oil prices ups and downs. More importantly, we'll analyze how this all directly affects the Saudi economy, your investments in the TASI stock market, and even the details of your daily life. Whether you're a seasoned investor, an entrepreneur, or just a follower of the economy, this article will give you a deeper understanding of the forces that continue to shape our world.

What is Oil? Find out why it remains the dominant force in the global economy

When we talk about oil, we are referring to Crude Oila dense, dark-colored liquid found deep in the Earth's crust. But this simple definition doesn't do oil justice. Oil is essentially solar energy stored for millions of years. It is the force that sparked the second industrial revolution, the fuel that powers airplanes, ships and cars, and the raw material that goes into almost everything around us, from plastics to pharmaceuticals and fertilizers. Despite the rapid rise of renewable energy, oil remains Dominant force It is the undisputed leader in the global energy mix, and any fluctuation in its supply or price sends shockwaves throughout the global economy, making it the most strategically important commodity of all.

Basic definition: From "black gold" to raw material

Chemically, oil is a very complex mixture of Hydrocarbon compounds (molecules consisting of hydrogen and carbon). This mixture is formed from the remains of tiny marine organisms (such as plankton and algae) that died and were deposited at the bottom of the seas and oceans millions of years ago. Due to the immense pressure and heat and the absence of oxygen, these organic remains slowly transformed into a waxy substance known as kerogen, and later into oil and natural gas. Crude oil is not used in its original state; it has to go through a complex refining process. Therefore, it is seen as Feedstock are broken down in refineries to produce a wide range of higher-value products, from automobile fuel (gasoline) and jet fuel, to feedstocks for the petrochemical industry.

The journey of oil: From geologic formation to the gas station

The journey of oil is an epic story that starts deep underground and ends in your car's gas tank. The process begins with Exploration, where geologists use complex techniques (such as seismic surveying) to identify potential oil reservoirs underground or on the seabed. After the reservoir is identified, the drilling phase begins to create wells, and then Extraction, where the crude oil is pulled to the surface.

Once extracted, it is transported via massive oil pipelines or by supertankers to refineries around the world. At the refinery, crude oil enters the refining process, most notably fractional distillation, where the oil is heated and its components are separated based on their different boiling points. This process produces familiar products such as liquefied petroleum gas (LPG), gasoline, kerosene (jet fuel), diesel, lubricating oils, and bitumen (asphalt), as well as raw materials for plastics.

What are the main types of oil? (The difference between Brent and WTI)

Not all oil is created equal. Crude oil varies greatly in its characteristics based on its geographic origin. It is usually categorized based on two factors:

1. Density: It is measured in "API score". OIL "Light Easier to refine and more valuable than oil "Heavy.
2. Sulfur Content: Oil "Sweet It has a low sulfur content and is more desirable (because it is cleaner and less expensive to refine) than petroleum "Sour with a high sulfur content.

Since there are hundreds of types of crude oil, global markets use "Benchmarks" as a reference for pricing other types. The most famous of these crudes:

• Brent Crude: Extracted from the North Sea, it is the most important global benchmark and is used to price about two-thirds of globally traded oil, including oil from Europe, Africa, and the Middle East.
• West Texas Intermediate (WTI): The main benchmark for oil produced in the United States. It is considered a high-quality "light and sweet" oil.
• OPEC Basket: The average price of crude oil produced by OPEC member countries.
• Dubai/Oman crude: It is used as the main benchmark for pricing oil exported from the Persian Gulf region to Asian markets.

[Comparative table: Brent vs. WTI and the most important differences]

What you need to know about today's oil price action

Oil prices are one of the most volatile and followed economic indicators in the world. The price is not determined by a single entity, but is the result of a complex interaction between Supply andDemand in global markets, as well as investor and speculator sentiment. To understand why prices are rising or falling today, we need to keep an eye on three key areas:

Supply: How do OPEC+ decisions and major country production affect the price of oil?

The supply side is the biggest controller of the amount of oil available in the market. The most influential player here is the OPEC+ alliance, which includes the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and non-OPEC allies led by Russia.

When this alliance meets, it makes crucial decisions about Production Quotas. If OPEC+ decides to cut production, it means less oil is pumped into the market, which often leads to higher prices (assuming demand remains constant). Conversely, if they decide to increase production, supply increases and prices tend to fall.

In addition to OPEC+, production from other major countries such as the United States (especially US shale oil), Canada, and Brazil significantly affect the global supply balance.

Demand: The relationship of global economic growth (China and America) to oil consumption

The demand side is closely tied to the health and growth of the global economy (Global Economic Growth). When economies grow, factories, transportation, and shipping increase, which means a greater need for energy, and thus a higher demand for oil.

The US and China are the world's largest oil consumers, so any economic data they release (such as GDP growth, manufacturing PMIs) is closely watched. If China's economy shows a slowdown, investors expect lower demand for oil and prices fall. Similarly, the summer season in America (vacation and driving season) is a peak period for gasoline demand that affects prices.

The role of geopolitical tensions and oil inventory reports

Factors are not limited to direct supply and demand. Geopolitical tensions play a crucial role. Any conflict in the Middle East, especially near vital shipping lanes such as the Strait of Hormuz, triggers investor fears of "supply disruption," pushing prices up sharply and immediately, even if supplies are not actually affected.

Another factor is the Inventory Reports, most importantly the weekly report from the U.S. Energy Information Administration (EIA). If the report shows that inventories are lower than expected, it indicates strong demand (or lack of supply) and supports higher prices. If inventories rise, it indicates weak demand and pushes prices lower.

How does oil affect the Saudi economy and Vision 2030?

For Saudi Arabia, oil prices are not just numbers on a screen, but a vital indicator that goes to the heart of the country's economic and financial planning. The relationship between oil and the Saudi economy is deep and historic, and it is now at the center of the biggest strategic shift in the kingdom's history: Vision 2030.

Oil as a key driver of the Saudi budget and public revenues

For decades, oil revenues (proceeds from the export of crude and refined oil) have accounted for the largest proportion of total Saudi State Budget revenues. It is these revenues that fund public expenditures, including public sector salaries, massive infrastructure projects, the education and health sectors, and government subsidies.

Therefore, the price of a barrel of oil is the most important number for the government. When oil prices are high, the budget runs fiscal surpluses, allowing for increased government spending, injecting more liquidity into the economy, and boosting foreign reserves. When prices fall, the budget runs a deficit, which may require measures to control spending or resort to debt to finance the gap.

Vision 2030: A strategy to diversify the Saudi economy away from oil

Recognizing the dangers of this total dependence on oil and its price fluctuations, the Kingdom launched Vision 2030. The core objective of this vision is to diversify the economy and reduce dependence on oil revenues.

The strategy is centered around building new and strong economic sectors to become alternative sources of income, such as:

• Tourism and recreation: through mega projects and hosting international events.
• private sector: Empowering it to become a key driver of economic growth and citizen employment.
• Investments: Through Public Investment Fund (PIF)which aims to be the world's largest sovereign wealth fund.
• Non-oil industries: such as mining, logistics, and technology.

The impact of oil prices on financing megaprojects (NEOM and Red Sea)

Herein lies an interesting paradox: For the Kingdom to successfully diversify its economy away from oil, it needs strong oil revenues in the short and medium term.

The Giga-Projects that are the face of Vision 2030, such as NEOM, **Red Sea Project**, and Qiddiya, require billions of dollars of investment. The main source of funding for these projects is the Public Investment Fund (PIF), which in turn is largely funded by oil revenues (both directly from the state and from the profits of its major companies such as Aramco).

Therefore, the continuation of oil prices at healthy levels ensures the cash flows needed to complete these ambitious projects, which in turn will become new and sustainable sources of income in the future.

Oil and investment: How do you read the Saudi stock market (TASI)?

If you are an investor in Saudi Stock Exchange (Tasi)You know that your eyes should be on oil prices as much as they are on the trading screen. The TSE is one of the most correlated markets in the world with oil prices, and understanding this relationship is key to making more mature investment decisions.

The direct relationship between oil volatility and the TASI

The Tadawul All Share Index (TASI) is heavily weighted to two major sectors: Energy and Basic Materials (petrochemicals). These two sectors alone account for a huge percentage of the index's total market capitalization.

The relationship is almost direct:

• When oil prices rise: Expectations are rising for huge profits for energy and petrochemical companies. This not only lifts the stocks of these sectors, but also improves Investor Sentiment generally in the market, leading to an influx of liquidity and a rise in the general index.
• When oil prices fall: The exact opposite happens. Earnings expectations fall, putting pressure on blue-chip stocks and dragging the general index lower.

Analyzing oil and petrochemical stocks: Aramco and SABIC

For a deeper understanding, let's look at the two largest companies in the market:

1. Saudi Aramco: is the most direct reflection of oil prices. A company's revenue and profits are almost entirely tied to the selling price of crude oil. Higher prices mean higher profits and higher dividends for shareholders.
2. SABIC (SABIC): As one of the world's largest petrochemical companies, SABIC's profitability depends on "Spread. It buys feedstocks (such as naphtha and ethane) whose prices are linked to oil prices, and sells finished petrochemical products (such as plastics and fertilizers) whose prices are linked to global demand. In general, SABIC benefits from a stable or rising oil price environment as long as demand for its finished products is strong.

[Self-checklist: Is your portfolio ready for oil price volatility?]

Ask yourself these questions to assess your portfolio's vulnerability to the volatility of "black gold":

1. What is the exposure ratio?
   • Do I know what percentage of my portfolio is invested in the energy and petrochemical sectors? (Higher percentage means higher risk associated with oil volatility).
2. Is my portfolio diverse enough?
   • Do I own shares in other sectors Not directly related to oilsuch as banking, telecommunications, healthcare, or retail, to offset risk?
3. What is my strategy?
   • Am I an investor Long-term Trusting company fundamentals, or trying to react to daily oil price fluctuations (speculative)?
4. Do I follow Vision 2030?
   • Do I look for investment opportunities in new sectors supported by Vision 2030 (e.g. tourism, entertainment, technology) that may provide future growth away from oil?

How does the price of oil affect your daily life in Saudi Arabia?

Beyond budget numbers and stock markets, oil prices have a tangible and direct impact that you may not always realize, but it affects your personal budget and daily living costs in Saudi Arabia.

The relationship between the price of a barrel of oil and the price of gasoline at your station

The most direct and obvious impact is on gasoline prices. In the past, fuel prices in the Kingdom were fixed and heavily subsidized. However, as part of the Vision 2030 economic reforms to increase spending efficiency, a Pricing Mechanism has been adopted that links local gasoline and diesel prices to global prices.

This means that when the price of crude oil (such as Brent crude) rises on the global market, the cost of buying and refining fuel rises globally. The government reviews these prices periodically (monthly or quarterly), and the price per liter at the gas station is usually adjusted to reflect these global changes. Therefore, the bill you pay to fill up your tank is a direct reflection of what is happening in the global oil market.

Does oil affect the cost of living and inflation?

Yes, but indirectly. Oil is "energy," and energy goes into the cost of almost everything. When diesel prices (used by trucks) and bunker fuel prices go up, Transportation Costs for all goods (both imported and domestically produced) go up.

This additional cost is not borne by the merchant, but is often passed on to the final consumer. This means that the prices of food, electronics, building materials, etc. may rise. This general rise in prices is known as Inflation, which directly affects the Cost of Living and your purchasing power.

The Future of Oil in the Global Shift to Clean Energy

We live in an age of Global Energy Transition. The world, driven by fears of Climate change and international commitments (such as the Paris Agreement), towards cleaner and more sustainable energy sources. This poses fundamental challenges for the future of oil, but it also opens up tremendous opportunities for the Kingdom.

Renewable Energy Challenges and Opportunities in Saudi Arabia

The challenge is clear: The rapid proliferation of electric vehicles, and massive investments in solar energy and wind power, mean that global oil demand may peak and begin to decline in the coming decades.

The opportunity is huge: Saudi Arabia not only has oil wealth, it also has one of the highest rates of solar brightness in the world. Vision 2030 aims to make the kingdom a global leader not only in oil, but also in renewable energy. There are huge investments in solar and wind projects, and big ambitions to export green hydrogen as a clean fuel for the future.

What is the role of Saudi oil in the coming decades?

Even as the energy transition accelerates, the world will still need oil for many decades to come, especially for sectors that are difficult to electrify (such as aviation, shipping, and the petrochemical industry).

The Kingdom's strategy is clear: To be the most reliable, least expensive to produce, and least carbon-intensive (most efficient and least emitting in the extraction process) producer in the world.

As high-cost, high-emission producers phase out of the market, Saudi oil will play a pivotal role in ensuring global energy security during the transition period. Revenues from this oil will be used to finance the building of a new, more sustainable Saudi economy.

[Top Oil Frequently Asked Questions (FAQ)]

What is OPEC and what is its real role in the oil market?

OPEC is the Organization of Petroleum Exporting Countries. It is an intergovernmental organization of 12 countries (as of the last update). It was established with the aim of coordinating and standardizing the oil policies of member countries.

Its real role is to act as a "central bank" for the oil market. OPEC (and its newer ally OPEC+) tries to stabilize the market by managing production levels. Its stated goal is to ensure stable oil prices in global markets, avoiding extreme volatility (both price crashes that hurt producers, and skyrocketing spikes that hurt the global economy and consumers).

How is the price of a barrel of oil determined on a daily basis?

There is no single "person" or "entity" that sets the price of oil. The price is determined on global futures markets, the most famous of which are the ICE exchange in London (for Brent crude) and the NYMEX exchange in New York (for West Texas crude).

On these exchanges, billions of dollars are traded daily through Trades between a wide range of participants:

• Producers (such as oil companies) who sell their future production.
• Consumers (such as refineries and airlines) who buy for their future needs.
• Speculators and investors (such as banks and hedge funds) who bet on the price going up or down. The price you see on the screen is simply the price of the last trade made, and it reflects the expectations of all these participants about future supply and demand.

Will the world really run out of oil?

This is a complicated question. The simple answer is "not anytime soon". Over the years, advanced technology (such as horizontal drilling and hydraulic fracturing to extract shale oil) has led to the discovery and extraction of vast amounts of reserves that were not economically viable in the past.

The big question today is not about "Peak Supply" (running out of oil), but about "Peak Demand" (Peak Demand). Most experts believe that global oil demand will peak (perhaps within this decade or the next) and begin to decline permanently due to the shift towards electric vehicles and clean energy sources. This means that the world will stop increasing its oil consumption long before the world actually "runs out" of oil.

Bottom line: Oil connects the global economy to your daily life

We hope this guide has demystified the "black gold". From its formation deep underground to its direct impact on your investment portfolio, oil remains the most influential factor in our global and Saudi economy.

Here's a summary of the most important points we covered:

• Oil is not just a commodity, it is the primary driver of the global economy and the main source of funding for Saudi Arabia's budget.
• Oil prices are determined by a delicate and complex balance between three major factors: Supply (managed by OPEC+), global demand (led by America and China), geopolitical tensions and oil inventories.
• In Saudi Arabia, oil plays a dual role: It funds the megaprojects of Vision 2030, which in essence aims to build a prosperous and diversified economy Away from Oil Dependence.
• Oil prices are not distant figures; they have a direct impact on everyone in Saudi Arabia, from the performance of the TASI stock market (especially Aramco and SABIC), to the price of gasoline you fill your car with and the general inflation rate.

Thank you very much for taking the time to read this article to the end. We hope you now have a clearer view of oil news, not as distant global events, but as an integral part of your daily economic reality.