The crude oil price hitting its all-time high since 2008. Crude oil price was up just over 20 per cent within the week. The average price of crude oil per barrel was touched the high of $130. This happened because the stock market was on edge with the first land war in Europe since World War II. The invasion of Russia over Ukraine plays a major role in this crude oil price hike. We all know that Russia is among the few countries that are the largest crude oil exporters in the world. It is hard for stock market participants to avoid the question that How the crude oil price affects the Stock market!?
The crude oil price hike will impact the market in a negative way, but it is a good opportunity for us to buy more shares. But first, let’s understand how the crude oil price affects the market. Here we noted down several points where crude oil price has a very bad impact.
Current Account Balance:
India is the largest oil importer in the world. We import approximately 80 per cent crude oil of our total oil consumption needs. When the crude oil price hike it would drive up the values of imports. It increases our current account deficits. The current account deficit means the amount India owes to the world’s foreign currency. Assume that the fall in oil price by only $10 per barrel impacts the current account deficit by $9.2 billion (approx. 920 crores). In another way, this amount is almost 0.43% of India’s GDP (Gross Domestic Product). So, when the oil price hike impacts India’s current account balance and the GDP also.
Currency Exchange Rate:
The value of every independent country’s currency is measured as its demand in the currency market. In our case, the demand of Rupee (₹) in the global currency market decides the Rupee value. It is highly dependent on India’s current account deficit. That we discussed earlier in the article. A high deficit means the particular country has to sell more of its currency to buy dollars to pay its international import bills. If the crude price marks an all-time high it means our fiscal deficit will decrease, Although Rupee become weak against the dollar. We have to sell more Rupee to buy dollars to import crude oil. It overall impacts our economy badly.
The hike in a global crude price may be beneficial to India. But how!? Because India is the sixth-largest exporter of petroleum products in the world. This industry earns nearly $60 billion annually. Any hike in oil price positively impacts petroleum exports. As we know that Asia’s largest petroleum refinery Reliance Industry produces and exports more petroleum than others. When oil prices are at the pick the exports of crude oil and petroleum products create a positive impact on the current account deficit and currency exchange rates. Every coin has two sides likewise when the cost of petroleum produces increases then the industries which use these products as raw materials have also impacted badly. Such as the Paint industry which uses petroleum products as raw material. So, when the crude oil price hike the profit of paint industries shrinks. So, it has both positive as well as negative impacts.
The crude oil price will impact the market in a negative way because the country’s current account deficit increases and the Rupee becomes weak against the dollar. But, it’s a good opportunity for us to buy more shares at low prices. So, it has both positive as well as negative impacts.
Image and article originally from sensextoday.co.in. Read the original article here.