Brent Crude Oil prices hit November 2022 levels of Rs 95.96 per barrel, on Tuesday. Fortunately, they showed some weakness during the last two to three trading sessions from these peak levels and are currently trading at USD 93.68 per barrel in the markets, approximately 2.4% down from their Tuesday high price.
Historically, in the year 2014, crude oil prices fell below USD 100 per barrel and were trading below this level. Moreover, it reached a low of 15.98 per barrel during the COVID-19 pandemic. From this low, it rose again and touched significant levels of USD 100 per barrel in the year 2022, in the month of February, and reached an all-time high of USD 139 per barrel in March 2022.
The direct impact of these price fluctuations in crude oil prices affects petrol and diesel prices across the globe. In India, apart from the several taxes implied on crude oil products, this is the prime reason behind the increasing petrol and disease prices where petrol prices have surged above Rs 100 per litre.
In this article, we will explore the sectors and industries affected by fluctuations in crude oil prices. While some industries suffer negative impacts from rising crude oil prices, there is one industry that stands to benefit from these fluctuations.
Sectors benefiting from rising Crude Oil prices:
Oil Exploration: The rise in Petrol and Diesel Prices might be disheartening for the consumer, but the market players involved in the Oil Exploration Sector are benefiting from the same. Current Players who are active in the Oil Exploration Sector are ONGC, OIL, and GAIL. From an investment perspective, one should exercise caution when considering the Oil Exploration Sector due to its short-term fluctuations.
Sectors negatively impacted by rising crude oil prices:
A significant portion, approximately 50% to 60%, of the raw material costs for paint manufacturers are tied to crude oil and its derivatives. The abrupt surge in oil prices directly affects the operating profits and profit margins of paint companies, leading to a negative market response.
Similarly, the tire industry relies heavily on crude oil and its derivatives, which account for approximately 50% of their total raw material costs. Like paint manufacturers, tire companies experience pressure on their operating profits and profit margins when oil prices rise.
Oil Marketing Companies
High crude oil prices can be detrimental to oil marketing companies in the short term as they struggle to pass on the increased costs to consumers, impacting their profitability.
A significant 40% of the raw material costs for aviation companies are attributed to Aviation Turbine Fuel (ATF). Consequently, the rising ATF prices directly impact the profitability of aviation companies.
Crude oil products also find applications in the cement industry. While the sector may not be severely affected, it will experience some impact from rising prices. However, factors such as recovering demand in the real estate sector and government initiatives for infrastructure development are there to support the cement sector’s profitability in the face of inflationary raw material prices.
When considering investments in these sectors, it’s crucial for investors to closely monitor crude oil prices and their behavior before making any decisions.