how crude oil prices affect indian stock market

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India being an importer of crude oil, so higher oil prices imply,more payment needs to be made in foreign currency. And oil prices have a major say in the financial markets of our country. A weak oil price usually signals strength in the performance of the stock market.

How rising crude prices will impact Indian oil industry?

How rising crude prices will impact Indian oil industry. Upstream oil firms could face a higher subsidy burden while any government move to cap prices will hurt margins of downstream companies. Stock market investors need to be careful because the impact of the rise in crude prices will be slightly complicated.

Why is crude oil an important factor in the stock market?

The crude oil is an important factor because India is one of the largest importers of oil in the world. Since India is an importer, the fluctuations in crude oil price is going to affect the economy and the stock market. There is an indirect effect of the price fluctuations in oil on the stock market.

What is the impact of oil price hike on stock market?

Hike in oil prices will also lead to inflationary pressure and force the RBI to hike interest rates. Stock market investors need to be careful because the impact of the rise in crude prices will be slightly complicated. It will both be positive and negative, depending on the sector.

How much does crude oil contribute to India’s trade deficit?

?In 2017, India’s trade deficit was $126 billion (4.8 percent of GDP), and crude contributed 35.1 percent to it. India exported $30.2 billion worth of refined petroleum products compared to imports of $74.7 billion.

What is crude oil?

The crude oil is the non-renewable that is resource extracted from the Earth. It is converted into products such as gasoline, diesel, fuel, and other petroleum products. Since it is a nonrenewable and it is consumed at a higher level than its replenishment level.

How does the oil market works?

The oil market works in the same way as the stock market functions. Before that we need to understand the options of oil trading. So let us understand what are oil futures?

How crude oil price affect the stock market?

The crude oil is an important factor because India is one of the largest importers of oil in the world. Since India is an importer, the fluctuations in crude oil price is going to affect the economy and the stock market. There is an indirect effect of the price fluctuations in oil on the stock market.

Why crude oil prices are falling?

The crude oil demand has fallen due to lockdown in many countries. 90% of the world is under lockdown due to Covid-19 pandemic. But there was a price war in OPEC countries. They didn’t stop the production of the oil despite the lockdown. The demand has been falling but the supply of the oil was excess.

What does the oil market crash indicates?

The oil crash indicates the beginning of the recession that the world is going to face after the lockdown. It is an indicator of the economic slowdown.

Why is oil important in India?

And oil is a very important catalyst in the movement of vehicles from one place to another. A rise in oil prices leads to a direct increase in the price of goods and services.

Does oil affect the Indian economy?

In conclusion, we can say that weak or reduced oil prices have a major positive impact on the Indian economy. India being an importer of crude oil, so higher oil prices imply, more payment needs to be made in foreign currency. And oil prices have a major say in the financial markets of our country. A weak oil price usually signals strength in the performance of the stock market. And a strong oil price has a negative impact on the performance of the stock market.

Who is Hitesh Singhi?

Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!

Is rupee a free currency?

Rupee, being a free currency (value of rupee depends on the demand in the currency market), its value depends on the current account deficit. Therefore, if the oil prices are high, then the country will have to sell rupees and buy dollars to pay for oil bills.

Does India import oil?

India imports nearly 84% of its domestic demand and it is one of the largest importers of oil in the world. Indian Oil imports account for nearly 27% of its total imports. Therefore, a fall in the prices of oil will reduce the cost of importing oil from other countries. And this in turn has a direct impact on the current account deficit (the amount that India owes in foreign currency).

Does oil price affect stock market?

A weak oil price usually signals strength in the performance of the stock market. And a strong oil price has a negative impact on the performance of the stock market.

Is oil price inverse?

Now, if research and history are to be believed, then there is an inverse relationship between the oil price and the Indian equity market. This is because the Indian oil industry is majorly an importer of oil. Therefore, industries like tyre, lubricants, logistics, refinery, airlines, paints, etc are directly affected by a change in oil prices.

How does crude oil affect the Indian economy?

Crude price impact on Indian economy: Higher crude price will have a negative impact on the fiscal and current account deficits of the economy. Increase in these deficits will lead to higher inflation and also impact monetary policy, consumption, and investment behaviour in the economy. A 10 percent increase in oil price will increase …

Why did the US oil production come down?

Hence, in mid-2018, the US crude oil production came down due to lower oil prices. With prices rising higher in 2016, they have increased their investment and production. Any production cut by the OPEC would drive the prices higher, but the individual countries do not want to surrender their market share.

What is the biggest import for India?

India is the net importer of goods ($126 billion in 2017) and oil ($74.7 billion) is the biggest category among imports. India imports 86 percent of its annual crude oil requirement. Since the payments are made in the US dollars, India’s deficit will depend on crude price as well as on the USD/INR exchange rates.

Where does Brent crude come from?

Brent crude is extracted from the North Sea, whereas Western Texas Intermediate (WTI) is from oil fields in the US. They differ in the amount of sulfur content; the lower is the sulfur, the easier it is for refining. WTI has 0.24 percent sulfur content whereas Brent crude has 0.37 percent. WTI is the benchmark for oil prices in …

Which country has the most oil reserves?

Within the OPEC, Venezuela (24.9 percent), Saudi Arabia (21.9 percent), Iraq, and Iran (24.9 percent) have the highest reserves. According to the US Energy Information Agency’s report, the US likely has surpassed Russia and Saudi Arabia to become the world’s largest crude oil producer. Shale oil production in the US has increased in recent years, …

Does crude oil affect CPI?

With a weightage of 2.4 percent in the CPI calculation, crude prices have a moderate impact on overall CPI number. However, crude prices impact the cost of producing many goods as it is used as a raw material in many industries.

Is ONGC a downstream company?

ONGC and Oil India are upstream companies. Downstream companies also indulge in the marketing of these products to consumers. HPCL, BPCL, and IOCL are downstream companies in India.

Why is it important to be careful in the stock market?

Stock market investors need to be careful because the impact of the rise in crude prices will be slightly complicated.

Should investors avoid upstream oil companies?

But this does not mean that investors should totally avoid upstream oil companies— those involved in oil exploration and production. The added subsidy burden will not hurt them much as it will only marginally reduce their profit. “We are not bearish on upstream oil companies. We continue to be bullish on ONGC because of the new oil discoveries, increased gas production and increase in gas prices on half yearly basis,” says Dixit.

Is depreciation in rupees a factor in oil price?

Depreciation in the rupee, though small, is also adding to crude oil’s rising cost. While international crude prices jumped 45% in dollar terms last year, the spike was by 49% in rupee terms.

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