scorecardresearchSpike in global oil prices might spook the markets

Spike in global oil prices might spook the markets

Updated: 10 Feb 2022, 09:27 AM IST
TL;DR.
If the crude oil prices top $100, financial markets could be headed for a steep correction, say experts. Let us uncover the likely impact of oil prices on Indian stocks
If the crude oil prices cross $ 100 per barrel, financial markers might see a considerable fall. 

If the crude oil prices cross $ 100 per barrel, financial markers might see a considerable fall. 

For the first time since 2014, the global oil price touched $90 per barrel on February 3. The spike in prices is rattling stock markets around the world, and any significant jump, if it happens, can spook the financial markets in India, warn experts. 

Let’s take a look at the recent trend of global oil prices. In 2021, the average closing price of oil rose by a whopping 55 percent when it stayed in the range of $68.17 per barrel. In 2022, the oil prices continue to be on a boil. After rising 21 percent, the prices touched a high of $92.31, according to the Macro Trends data.

Some experts say that if oil prices rally further, and reach the level of $105 per barrel, a stock market decline of even 10 percent could ensue.  

G Chokkalingam, Founder at Equinomics Research, said that the Indian markets have not priced in the risk relating to oil price rise. “As such there is no immediate concern for the markets. Even a rate hike by the RBI wouldn't cause a disruption. The markets are already 10 percent lower than their peak last year. But if the oil prices keep rising, then there is a lot of worry for India especially with a high projected fiscal deficit of 6.4 percent. The trigger point for oil is $110, at which the markets could slide by as much as 10 percent,” says Mr Chokkalingam.

A recent report co-authored by Prabhudas Lilladher states that the rising crude prices, global inflation, geopolitical uncertainty, supply chain disruptions, and hawkish stance of the Federal Reserve can increase inflation and pressure currency. “We believe 2022 will be a stock pickers market and easy money-making is over,” reads the report.

 

Average closing price of crude oil

Year Price (per barrel)
2019$56.99
2020$39.68 
2021$68.17 
2022$84.31

(Source: Macro Trends)

 

According to a Reuters report, the oil price that spiked 50 percent in 2021 will continue to spike in 2022 and may even cross $100 a barrel because of lack of production capacity and limited investment in the sector. 

So, we can see that the next few weeks are crucial for financial markets, and any major spike in global oil prices can throw them into a tailspin.  

First Published: 10 Feb 2022, 09:27 AM IST