The relation between crude oil trading strategy and stock market has been a major field of research for economists. Not always but most often the rise in crude oil prices has found to have detrimental results on all industries except oil and natural gas. Hence oil has statistically had a negative impact on US and UK industry. In the long term, it has been found that increasing oil prices have impacted six OECD countries negatively. Whereas the declining oil prices have proved bullish for the market. However, it has been observed that most of the time oil prices tend to move in the same direction. It clearly states that a rising oil price shows the economic expansion and thus growing future prospect for the corporate earnings.
On the contrary, the falling contributes weaker future economy and hence low future corporate earnings. The main reason for negative impacts is the fear of investors that prices will raise and lower margins will incur to the company. The direct reason is increasing in price leads to the increased fuel cost and transportation cost of the companies. This uncertainty has always restricted buyers to invest in crude oil leading to stock falls and hence a negative impact on the market.
The rising oil price is a part of an inflationary mega trend making the peak oil mega trend bullish for the market. As an instance, a serious diversion was noted between oil and stock market in the first half of 2008.The inflation soared. And this made a stern bear market. Despite the divergence didn’t persist since the oil bubble burst out making oil prices crash to the lowest.
As a conclusion, it can be said that a rising tendency in oil price is generally bullish for stock market until a parabolic obsession driven spike is encountered that is to kill the future financial demand and hence discounted in present by lower trending stock market. In the current situation, the prices are just above $100 that makes everything OK. It is not bearish for the market until the parabola comes and spike goes up to $150 by midsummer. Everything is fine till everything is gradual. Inversely, the weak oil cost is bearish for the stock market. As a suggestion, it is always safe to wait and watch after a rise in prices before making the investments. However, no one could guess what would happen the next moment which makes crude oil trading strategy the most uncertain one.
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