Impact of Crude Oil Price Rise on Different Sectors

Which sectors are impacted due to rising crude oil prices?

Introduction

Petrol-Diesel Prices are touching new record highs every day. Rising Crude oil prices is the key reason behind rising petrol and diesel prices. In this blog, let us discuss the impact of this price rise on some sectors.

Impact of rising crude oil prices on various sectors

Crude Oil Price Trend

• From the beginning of the January 2021 till today, the price of crude oil has risen from $51 per barrel to $66 per barrel, which accounts to rise of 28% in crude oil prices in the given time period.
• Apart from the several taxes which are imposed on the Crude oil products, this is the prime reason behind the increasing petrol and diesel prices.

Sectors that are benefited from rising crude oil prices

1. 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

Sectors that are negatively impacted from rising crude oil prices

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.
• This will in turn affect profitability of this sector.

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.