Crude oil prices are touching a new high and it’s around $80 a barrel which is the highest in the last 4 years. Numerous experts also proved wrong, as they believe that the prices will not touch these levels in the recent days to come. Over the last year, the shortage in supply of the crude oil has kept the prices inflated. There are several other factors responsible for the dearth in supply of crude oil across the world. Some are of the opinion that the rising prices are due to politics than economics.
Why oil prices are rising?
The buoyant trend in the global economy has fueled the demand for crude oil during the last few months. The consumption of oil throughout the globe during the fourth quarter in the previous financial year has increased by around 2% year on year basis.
The United States move to make exit from the Iran nuclear deal and the sanctions imposed on Iran is considered as a major factor for the recent surge in crude oil prices. The oilfields in Venezuela have together cut its oil production, which has further worsened the supply situation from OPEC and political instability in the South American Nations. OPEC has also cut supplies with an intention to increase its prices.
The intensifying political concerns between Saudi Arabia and Iran over conflicts with Iraq, Yemen, Libya and Syria have turned up the heat in the middle-eastern region, which is also a major reason for shoot up in the crude oil prices. Over the past few months, the adverse weather conditions had resulted to decline in oil supply to US. However, the conditions getting back to normalcy, the oil supply is expected to increase at a rapid pace.
What it means for Indian Stock Market
The rising oil prices are making a strong impact on stocks and different industries as well. The increasing oil prices bring hard time for oil, chemical and agrochemical companies, which is further making adverse impact on the profitability of consumer durables companies, airlines and staples manufacturers. Oil exploration companies will get benefitted from higher oil prices.
When it comes to stock market, Nifty and oil prices move in sync. The rising oil prices make an upswing in economic cycle that leads to make the equity market bullish. On the macroeconomic aspect, the rising crude prices signify the rise in the level of inflation, increase in petrol and diesel prices, and hike in interest rates.
Global crude oil prices have increased significantly due to lack of production of oil and thereby supply from key oil-producing countries, US exit from Iran nuclear deal, and political confrontation arising among middle-east countries. The rising oil prices will have a positive impact on the stock market.
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