Whether or not oil is affecting the stock market

A long standing question in the investment world and the stock market question is: "Does the price or circulation of oil affect the actions of the stock market?" Many have tried to answer this question and there are logical responses on both sides of the argument. This will likely remain a question of concern among investors, business owners, politicians, and consumers for many years to come.

Since the price of crude and processed oil began rising there has been a concern as to whether or not the price of oil affected the decisions of stock investors and businesses alike. One of the main arguments for this theory is that if it costs a company more money to produce the same product, the price of the product or the stability of the company will be compromised. If the company is not viewed as stable, then the investors begin to devalue the stock of the company and may believe that it is no longer economically viable. Another aspect of this argument is that logical investors would not be inclined to invest in companies that rely heavily on oil, like airlines or mining operations, because there appears to be an inseparable dependence on the use of oil products. Many investors may not understand that necessity breeds creativity. If oil were so volatile that it could no longer be considered reliable, businesses and consumers would seek other methods of providing the energy they need to produce and distribute their products.

Another argument is that an increase in the price of oil necessarily increases the price of other products that require the use of oil products to get to the consumer. For example, plastics require the use of oil in their productions and also require the use of vehicles to transport to and from factories. If a food is packaged in a plastic container and the cost of oil increases, the cost of production per unit of the food item will also increase. The company that is selling the product will have one of three options: stop production of the product altogether, increase the price of the product to the final consumer, or maintain the price at the same level and sacrifice profits. Any one of these outcomes may be taken by an investor as a sign that the company is becoming weak and can no longer be competitive in the market. If the company decides to discontinue the product, investors see this as a sign that the company can no longer produce the products necessary to turn an adequate profit to give the investors the required return on their money. If the company decides to increase the price of the product in an attempt to keep profit margins at their regular levels, they will be seen by investors as greedy or that they have a different motive than the stockholders' satisfaction at their heart. If the company decides to retain the price of selling the product and to sacrifice profit to benefit consumers, the investors may see the financial reports and believe that the company is no longer able to maintain the level of productivity demanded. The price of the company's stock will decrease as a result of these events.

While these theories sound appealing to the aspiring investor (or overly analytical one), it may not be realistic for the price in oil products to change the way things are very much at all. Many consumers go to the market and practically expect the prices of goods to increase over time. It is the way things have been for a long time and will be the way things continue for who knows how long. So when someone tries to tell you that the price of oil is affecting the stock market, their argument may have some validity, but the prices of goods and services will always be in flux and will depend on any number of other environmental factors other than oil. Even oil doesn't have a stranglehold on the economy to that degree.