Any fluctuation in oil prices internationally impacted several industries and sectors’ including financial markets such stock market, currency market, and numerous other commodities such as natural gas, sugar, and cotton in the commodity market.
Let’s take a look at the industries that are most affected by the change in crude oil prices.
The airline industry is one of the industries which significantly affected by the fluctuation in crude oil prices. It is because airline companies need aviation fuel to not only run their planes but also their businesses too. And when there is a rise in fuel cost, the companies generally have to increase their airfare to lessen the financial burden. The increase in airfare led passengers to switch to other airlines or other modes of transportation. This plunge in the no. of airline passengers led to despondency in the airline industry.
Even this year all domestic airlines reported a loss in Q1FY2018 because of rise in crude oil prices.
Investors who are invested in FMCG stocks must keep tabs on the global crude prices. It is because consumer goods are also heavily impacted by the rise in crude oil prices. The key inputs used by consumer goods’ companies in FMCG industry are derivatives of crude oil e.g. linear alkyl benzene (LAB) and high-density polyethylene (HDPE) used in making detergents and as packaging materials respectively.
So, any increase in the crude prices means the prices of these inputs will move up. In short-term fluctuations, companies do not increase the prices of their products and take a hit on margins but it keeps for long then the companies raise prices. That’s why the rising crude prices are not best for the FMCG industry. For instance, this year in 2018, the crude prices have seen a 10 percent jump and spiked to a level of about $72 a barrel.
Besides, the FMCG industry is the fourth largest contributor to the revenue of the economy. So, if there is a hike in crude prices and FMCG companies decided to raise the prices of petroleum products then it would contribute to retail inflation.
Not only the sectors but various industrial industries also impacted by the fluctuation in crude oil prices. It is because most industries and factories rely heavily on fuel for their production businesses. The machines and equipment used in industries required more oil and when the prices go up then either they reduce their production or reduce their workforce to balance their amount and profits. There are other industries that have a correlation with consumer goods. For instance, the petrochemicals which can be converted into consumer products like plastic, rubber, textile, solvents, and dyes etc. These are the products which used petrochemicals as a primary product. So, the rise in crude oil prices directly affects these industries a lot.
You must be wondering how the volatility in crude prices affects the banking sector. Well, the thing is, when the crude prices go up then it lead to a depreciation in Indian rupee. In order to protect the economy from the after-effects of falling rupee, the Reserve Bank of India takes necessary steps like increasing interest rates, reviewing monetary policies, and liquidity adjustment facility etc. When that happens, interest rates on loans hiked and banking sectors lose their customers. Not just that sometimes RBI asked commercial banks to maintain more money in the cash reserve which made it more difficult for banks to lend.
So, it would be recommendable to keep tabs on crude prices if you’ve invested in the banking industry.
Final Thoughts: –
In short, oil prices affect a lot of companies in different industries. Although the consumers not always affected by this fluctuation the investors must keep an eye on the ups and downs of the crude oil prices.
Hope, this article helped you in a way you expected it to be. Nevertheless, if you have any query or would like to add something then doesn’t forget to mention in the comment section below.