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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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