Industry & Sector which benefited from increase of crude oil price & natural gas price
Oil Exploration
Rise in Petrol and Diesel Prices might be disheartening for the consumer, but the market players involved in Oil Exploration Sector are quite benefiting from the same . Current Players which are active in Oil Exploration Sector are ONGC, OIL, GAIL. With investment viewpoint, one should be very careful while investing in Oil Exploration Sector as it involves fluctuations on short term basis.
Reliance Industries To Benefit From Sustained Higher Oil Prices: Morgan Stanley. Reliance Industries Ltd., India’s largest company by market value, is seen to benefit as oil spikes, according to Morgan Stanley.
New Technologies Become Viable
New Technologies Become Viable Cheap oil is problematic for companies and industries looking to supplant oil. With higher oil prices, though, suddenly a lot of new ideas get a hearing .1 Increased fuel mileage for passenger cars seemed pointlessly expensive in the U.S. prior the 1970s energy crisis, and it likewise seems probable that hybrids today owe any acceptance outside of the environmental crowd to the high price of gasoline (the number one derivative of oil these days). Along similar lines, the path towards viable mass market all-electric cars is predicated on persistently high oil prices.
Alternate Source of Energy become Cheaper
If increased exploration and production is a normal byproduct of higher oil prices, so too is substitution. When Nazi Germany faced oil shortages in World War II, methods of producing oil, diesel and gasoline substitutes from vegetable oils, animal fats and coal were thoroughly explored. Likewise, the oil crisis of the 1970s gave the development of ethanol in Brazil a major boost.3
- Ethanol Fuel
- Solar Power
- Wind Power
- Hyderogen Power
- Nuclear Power
Industry & Sector which negatively impacted from increase in crude oil price & natural gas price
1. Paints
Out of total raw material costs incurred by paint manufacturers, 50%-60% of this cost accounts to crude and crude derivatives.
The sudden spike in oil prices takes a toll on company’s operating profits and profit margins
This is the main reason for negative reaction to paint stocks by market participants.
2. Tyres
In case of tyres as well, crude and crude derivatives account for 50% of total raw material costs incurred by tyre companies.
Similar to paint companies, there can be pressure on operating profit and profit margins for tyre manufacturers.
3. Oil Marketing Companies
Currently, there is quite a lot of media coverage on rising petrol and diesel prices. Also upcoming assembly elections in few states like Assam, West Bengal and Tamil Nadu, etc can provide an assurance that these price hikes won’t be there for long term.
High crude oil prices will be detrimental for Oil Marketing Companies on a short term as the companies will not be able to pass the inflationary crude oil price to its customers by hiking diesel and petrol prices.
4. Aviation Sector
40% of the raw material costs accounts for Aviation Turbine Fuel (ATF) in any aviation company.
Since, there is an increase in price of ATF also, there will be a direct impact on the company’s profitability.
5. Cement Sector
Crude products also have a decent application in cement industries. The rise in prices will not affect this sector to a greater extent but will have an impact up to some level.
Recovering demand in real estate sector and government push towards infrastructure development will aid sector’s profitability amid inflationary raw material prices.
6. A rise in the cost of production:
Companies like tyre, lubricants, logistics, footwear, refinery, and airlines hugely depend on crude oil prices. Further, products like paints too will benefit from reduced crude oil prices. This is because; most paints used today are oil-based. A fall in crude-oil prices affects the input cost of producing these goods. Thus, a fall crude oil prices have a positive impact on the stocks of these companies.
7. A rise in the transportation cost:
A rise or fall in crude oil prices affects the transportation cost of goods. Crude oil prices have a considerable impact on the prices of consumer durables. These products are manufactured in industrial units and then sold in various cities across India. A fall in the logistics cost of these goods will bring down their final price. A fall in prices of consumer goods raises its demand and thus its stock price.
8. Inflation:
Every US $10/bbl increase in oil price will result in a 0.3% or 30 bps increase in CPI. Crude oil has an impact on the prices of all goods and services. Agricultural commodities or manufactured goods, oil prices affect their MRP. A considerable fall in prices of goods and services will ease inflation. Inflation is often perceived negatively by an investor. Thus, a comparatively lower inflation level will be beneficial for the stock market.
9. Fiscal policy under weather:
In the light of FY19 elections, the government is likely to focus more on stabilising prices instead of protecting revenues. Higher oil price would increase the subsidy burden on government leading to an increase in the budgeted fiscal deficit. Additionally, the government will have to reduce the excise duty to lower the prices for the end consumer. This decision will lead to a revenue loss and a slippage in the fiscal deficit. It is likely to be 3.5% against the budgeted 3.3%, according to Kotak Securities estimates.
10. Inflation could rise:
Petroleum products form 3.4% of consumer price index (CPI). An increase of US $10/bbl would increase the average CPI inflation by around 50 bps in FY2019. With general elections due in May 2019, an incumbent government will find it difficult to avoid intervention. Since prices of petrol and diesel are deregulated, they would cut excise duty and minimize the impact on consumer price inflation.
11. Rupee could slip further:
Balance of payments (BOP) is a balance of all international transactions of a country. Increase in fuel prices will not only widen the current account deficit but also impact the BOP negatively due to higher imports than exports. As a result, the rupee is expected to remain weak. Considering the higher imports and a widening current account deficit, the impact could be inflationary on the economy.
Industry & Sector which benefited from reduction of crude oil prices & natural gas price
Lower Current Account Deficit (CAD) and Rupee Strong:
Therefore, a fall in the price of crude oil will have a positive impact on India’s current account deficit situation. Lower CAD will mean reduced stress on foreign currency outflows. This, in turn, may lead to rupee appreciation. If the value of rupee appreciates, the imports become cheaper. This will affect the companies who depend on import crude oil and other raw materials, for their business. The price of stocks of these companies will thus experience a rise.
Industry & Sector which is negatively impacted due to reduction of crude oil price & natural gas price
Higher Current Account Deficit (CAD) and Rupee depreciation:
Every U$10/bbl increase in oil price leads to a 0.55% or 55 bps increase in the current account deficit. Crude oil is one of the most important commodities in recent time. India is one of the largest importers of oil in the world. It imports more than three-fourths of its oil needs.