SHARETIPSINFO >>Articles Directory >>Affect Of Rising Price Of Crude Oil On Stock Market


For the last few years it has been seen time and again that increase in the price of the crude oil had a direct impact on the stock market. Though it is hard to imagine buy it is fact that a rise in the oil price has negative effect on the stock prices at the stock exchanges all over the world.

The main reason behind this is the fear of the investors that the profit margin of the companies will decrease because of the increase in the oil price. As an increase in the oil price directly increases the operational cost, fuel cost, transportation cost of the companies, it is quite natural that the profit margin of these companies will decrease. This is the reason that the buyers become susceptible about the future of the companies that are hugely dependent on oil. This uncertainty restricts the buyers to invest in these companies and as a result the price of the stocks falls that ultimately has a negative effect on the overall market scenario. But this phase is temporary as the companies adjust in the price level to make up for the increased price in the oil and maintain the profit margin.

All said and done this fear for the fall in the profit margin is not practical according to the theory. In practice the effect of the price increase in the profit margin of the companies takes time. Before that could actually happen the companies take adequate measure to avoid the loss. Therefore, the influence of the rise in the price of crude oil on the stock market is basically triggered of the panic of investors rather than actual impact. But still it is always wise to wait and watch after a rise in the oil prices takes place to make investments. In this phase it comparative safer to invest in sectors that are not really dependent on oil such as software industry, banking sector, financial companies.


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