As I am sure you know you know crude oil prices have been all over the place recently. We had a high of $147 in July 2008 and a low of $33 in February 2009. At the time of writing this post the spot oil price is hovering around the $70 area.
Let’s take a quick look at a historical oil price graph.
This chart shows the price of West Texas Intermediate or WTI crude oil. Prices have been volatile, haven’t they?
What affects on the stock market do oil prices have?
As with most commodities, when prices fluctuate there are winners and losers.
High oil prices tends to be favorable for the major oil companies like Exxon Mobil and Shell as their oil reserves will have a higher value.
When we have had exceptionally high oil prices in the past like in 1978 and 2008, there have been many casualties. Oil is significant cost for most business’ and the doubling and tripling of the oil price can put a massive strain on many industries including haulage, couriers, distribution.
When the price of oil is high, it can have a very broad inflationary affect as everything has to be distributed and that takes diesel!
The state of the economy
The current state of the global economy can play a major role in determining how oil prices affect the stock market.In the past when we have been in an economic boom cycle, the economy can often withstand higher oil costs.
However, in recession when the economy cannot withstand such high prices can deepen a recession and take longer to recover.
As oil prices are traded openly, they are ultimately controlled by supply and demand. However, as we have seen on occasions before, speculators can cause spikes that can be harmful to the economy.
We all feel it
There is no doubt the cost of oil affects most of us. High oil prices mean many large corporations will show lower profits (unless they have oil interests of course), food will cost more, gasoline and diesel will be more. The list is potentially endless.