60% Oil Price Rise in 5 Months: 2 Reasons & Impact on Markets

| January 4, 2018
Event: 60% Oil Price Rise in 5 Months

2 Reasons Why Oil Prices Are Rising Now

On May 17, the price of Brent crude was $49.28. This year the lowest point was $30.84 on Jan 20. The rise is close to 60%. This remarkable gain by Brent crude is due to 2 key reasons. They are as follows.

  1. Three of the top 15 oil producing nations are facing either man-made or natural disasters.
    1. Canada is currently the 5th largest produced in the world. But, wildfires have affected about one-third of total oil output.
    2. Nigeria, which is ranked 13 in oil yield, is facing disasters of a different kind. The internal clashes have caused extensive damages to oil pipelines. The production is down by 1/5th of the total capacity.
    3. Ranked after Nigeria in oil production, Venezuela is facing both economic and power crisis.
  2. Global oil need is increasing steadily. According to EIA, the demand for Q1 2016 was 97.5 million barrels a day. This increase is a steady 3% percentage more than 94.6 million during Q1 2015. The demand has been higher than earlier estimates for two emerging nations India and China.
Impact on Financial Performance of Companies:

Which 3 Industries may be affected directly?

Usually, rising oil prices tend to affect the following industries negatively.

  1. Airlines
  2. Automobiles
  3. Consumer Discretionary (& Staples)

Regarding airlines, the rising oil prices may lead to increased ticket fares. And the car (especially SUVs) sales may drop with consumer worries regarding fuel expenses.

Usually, the falling oil prices leave extra money in consumer pockets. They naturally spend this on food and retail consumer goods. When oil price rises, the opposite happens.

Is there any visible impact on markets (share prices) so far?

So far, the markets have shown mixed reaction to the rising oil prices. One has to wait for a period before seeing a correlation.

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