Asked by Anonymous
Asked on 13 Mar 2019
Mainly will affect O&G production, pipelines, service-related companies in the short-term
The immediate hits are the users of oil - Airlines is a major one given how they'd hedge oil prices. Nonetheless, it's beneficial to oil companies i.e. Keppel because they'd be able to command a higher price for the oil they rig.
But all in all, oil is more of a commodity, so its direct comparison would be that of Gold etc.
No doubt oil is a factor of production for most companies, and therefore the movement of oil prices will affect the cost of facotrs of production. However, based on my observation thus far, oil prices do not affect every companies' share prices.
Instead it seems oil price only affects certain industries such as oil exploration company and the derived demand industries such as offshore building/rig suppliers/ AHTS suppliers/ plastic making companies.
It is such companies whose share prices are affected. When oil price is up, it means more exploration activities are needed, this means increase in order book for offshore building/rig suppliers/ AHTS suppliers and in turn more profits. For plastic making companies, the inverse hapens because oil is one of their main cost factor, however if they are a monopoly they are able to pass most of the cost increase to their clients
Oil works simply in a supply/demand style. Price fluctuations to it will affect oil & gas business such as Exxon, Shell etc.
However, to businesses that do not rely on oil prices, such as cybersecurity, I do not see any link to it - at most it's only indirect, peg to customer demand. But that is also after a few layers (increase in oil price, lower customer spending, lower business revenue, lower earnings).
At the end of the day, coming from myself in the oil & gas industry, I would not bother to invest in it due to its cyclical nature, nor would I bother much about its prices affecting the businesses I invested in.
Oil is the basic good of the economy. Change in its price affects other sectors such as the economy of the country, the stock market, gold prices, inflation, etc... Increase in oil price can affect expenses of consumers leading to reduced demand from consumer side. The reduced consumer demand is likely to affect the revenue of companies. And because of high expenditure but low revenue, stock price is going to fail.