Reports of rising oil and energy prices have been significant in 2022. Unlike 2020 and 2021, the price of a barrel shot to over $100. Stocks and other tradable instruments have received a significant hit, dampening investor confidence, which has since moved to other safer assets.
The oil industry has a lot of significance in the world and has a significant say in the direction cfd trading in PrimeXBT and the stock market takes. The importance of oil is greater currently than in any other period before because of the sudden spike in the demand for goods and services after extended periods of lockdowns in most of the developed world.
What Is Driving Up Oil Prices?
Brent oil, a widely regarded oil benchmark, closed 2020 with a barrel of oil going for about $50. The figure went even lower at the height of the pandemic according to the price terminal of PrimeXBT, inviting many investors to take new positions in oil stocks.
However, in 2022, when much of the world opened, oil prices shot to record highs of over $100.
The spike in oil prices that are threatening to shake the well-being of many economies is because of the COVID-19 pandemic and its after-effects on the supply chains. During lockdowns, the demand for goods and services was at an all-time low, limiting the use of oil in many areas of the economy. Oil demand also reduced because some non-essential businesses could not open in some parts of the world, further driving down the price of oil.
After the lockdowns, the demand spiked immediately, bringing oil prices to historic highs. Other situations pushing up the oil prices were the increasing tensions in Eastern Europe somewhere in December 2021. Pessimistic market analysts predicted a bloody conflict in the Eastern parts of Europe, which pushed many oil marketers at the time to protect their positions by gradually increasing oil prices in the countdown to an invasion.
Predictions of a conflict in the eastern parts of Europe became true, which sparked sanctions from the western governments that significantly reduced reliance on Russian oil, further pushing up oil prices.
Do Oil Prices Affect The Stock Market?
When stock prices are low following a bearish market run, many investors take new positions in PrimeXBT and many other trading platforms, hoping for a future bullish run to dump the stocks. Oil companies took a significant hit when oil prices plummeted at the height of the pandemic. The slump highlights that oil prices shake the stocks of the companies dealing with the commodity first.
During an oil rebound, oil stocks gain momentum until they peak. Historically, oil prices have always picked just over $100. The highest recorded figure was $147, which was registered in 2008 during a financial crisis.
During the famous financial crisis of 2008, many companies shed a lot on their overall valuation. Top indices shed a lot, some registering up to a 10 percent drop. In the Corona stock market fall, stock markets also registered falls of over 10 percent. The FTSE took a 13 percent hit in February 2020 while the S&P 500 fell by 11 percent.
How Have Oil Prices Affected The Stock Market In 2022?
Mirroring what happened in 2008, companies in 2022 have taken a lot of hits in their valuation following a rise in energy and oil prices. However, the fall has not affected the oil companies as much.
The rapid rise in oil prices piled pressure on the already constrained supply chains, pushing up the prices for other goods and services. Higher prices signify inflation, which pushes central banks to act by raising interest rates. Higher rates dampen business by cutting down loan appetite by firms to grow or take in new employees. The overall effect of this is plummeting stock prices in different industries.
Will Stocks Rebound When Oil Prices Fall?
When oil prices finally reach their peak and begin falling, businesses might finally produce and supply things to the consumer cheaply, meaning inflation might come down. When the markets adjust, and commodity prices start falling, stock prices might peak again, pushing up the S&P 500 and many other indices.