Crude Oil- A Commodity that Moves the Market

Commodities often affect the companies and the markets. But what moves the market most is Crude Oil. It is a trend setter. However, it is very uncertain how markets, especially Indian Market will take the change in the prices of the Crude.

Oil prices are decided by the supply and demand for petroleum-based products. During an economic expansion, prices might rise as a result of augmented consumption; they might also decline as a result of increased production.

Stock prices rise and fall depending on future corporate earnings reports, fundamental values, investor risk tolerances and a large number of other factors. Even though stock prices are commonly combined and lumped together, it is very possible that oil prices affect certain sectors much more radically than others. In other words, the economy is too intricate to expect one commodity to drive all business activity in an expected way.

Crude and Transportation:

Transportation is one sector that is strongly correlated with the spot price of Oil because the dominant input cost for transportation firms is fuel. Investors might want to consider shorting the stocks of corporate transportation companies when oil prices are high. Conversely, it makes sense to buy when oil prices are low.

Date	Crude Oil	VRL Logistics	TCI	AllCargo	Aegis	Snowman Logistics
16-Dec	51.9	266.4	163.9	171.1	142	51.7
15-Dec	50.9	265.85	169.4	171.65	141.65	52.7
14-Dec	51.04	265.5	175.1	164.9	139.05	52.45
13-Dec	52.98	267.85	179.7	165.85	141.4	52.45
12-Dec	52.83	266.45	170.95	164.3	145.5	53.2
9-Dec	51.5	267.8	170.1	166.7	150.4	52.75
8-Dec	50.84	265.9	170	168.3	146.5	50.55
7-Dec	47.99	264.15	170.3	166.3	144.3	50
6-Dec	50.93	263.85	170.85	164.55	143.85	50.65
5-Dec	51.79	265.25	172.85	163.75	144.75	51.3
2-Dec	51.68	264.15	169.7	171.1	142.5	51.65
1-Dec	51.06	273.9	173.3	173.85	149.45	52.8
30-Nov	49.44	275	175.1	177.6	149.15	53.6
29-Nov	45.23	269.2	176.6	172.3	144.75	52.15

The table depicts that rise and fall in the Crude oil prices has more or less have affected most transport and logistics companies. On 16^th December when the crude went green, TCI share price took a massive fall. Even Snowman Logistics share price declined. On 15^th December, when the price of Crude had slipped from its earlier price, VRL Logistics share price gained, and so did Aegis share price, Allcargo share price and shares of Snowman Logistics. However, on 2^nd December, it is easy to notice that a massive gain in two trading sessions lead to the decline of each transportation stocks. All these stocks are top 500 recommendations by the Dynamic Levels for the quarter, apart from Aegis which is a Multibagger Stock pick.

Since, even the shares of transportation and logistics companies do not trade alone on the price of Crude. Rather there are many factors that drive the prices of these stocks. Hence, impact of crude is often visible on most of the stocks, yet it is not that prominent and regular.

Crude worries Consumers:

On November 30^th the Organization of the Petroleum Exporting Countries (OPEC, for the first time in eight years, decided to cut their oil production levels by 1.2 million barrels per day in order to raise global oil prices. OPEC, an association of 13 major oil exporters, currently produces 33.7 million barrels of oil per day (bpd). As part of the deal, they decline production down to 32.5 million bpd, with Saudi Arabia, Iraq, UAE, and Kuwait making the biggest cuts.

Since the announcement, oil prices have risen from $46 per barrel up to $53.77 per barrel as at the first week of December.  The odds of rising crude oil prices are lofty but while that would be appreciated by oil producers, consumers might not be that thrilled as higher crude price mean potential increase in petrol pump price. The general predisposition is that when oil price falls, consumers are happy while producers are unhappy.

As per the US Energy Information Agency (EIA) crude oil prices make up 71 per cent of the price of petrol. The rest of what consumers pay at the pump depends on refinery, distribution costs and other related costs which usually remain stable. Analysts, therefore, foresee a surge in petrol prices following the agreement by oil producers to slash global output which has seen crude price surging high.

Already the price of petrol in some consumer countries is close to rising. In India, authorities have notified consumers that they may soon have to cough up more, though the fuel price hike may happen in installments according to the reports of media. The government might require raising petrol and diesel prices by up to 6 Rupees a liter when they review fuel prices mid-December.

Although, Crude Oil does not directly impacts the market as a whole, but there is no denying the fact that it is a major driver in the market. Any share rise or fall in its prices affects the stocks one way or the other. It might not be wrong to say that this commodity is an important market mover.