3

There are certain patterns in the economy. I am not sure where I can find this type of information. Prices of services and some products tend to go up when oil prices go up.

From a Market/Stocks/Securities perspectives, which industries tend to go up with the oil prices?

3

Generally speaking, you want to find goods and services that are inelastic and also require oil as a cost. Oil company stocks make record profits when oil is high, because direct demand for oil is relatively inelastic.

Industries

  • Petroleum
  • Food
  • Medical Plastic/Manufacturing
  • wartime logistics contract companies

Profit margins of oil competition should also go up, as this creates inflation in general, as people seek alternatives to the inelastic demand.

  • 2
    I've seen Berkshire-Hathaway's purchase of Burlington Northern-Santa Fe described as a long-term hedge against rising oil prices (against the backdrop of continued growth in the US economy). Trains are more fuel-efficient than trucks. – user296 Feb 8 '12 at 22:34
3

You can look at it from a fundamental perspective to see who benefits from rising oil prices.

  • oil companies' earnings increase and they start investing in new fields which drives the earnings of the oil services companies (who build rigs and wells)
  • people drive their cars less and therefore buy fewer cars, plane tickets become more expensive and people have less money to buy clothes or holidays.

That's a high level analysis and the devil is in the details - higher oil prices may favour electric car producers for example or discount clothes retailers vs. branded clothes manufacturers.

Another approach it to use a statistical analysis. I have run a quick and dirty correlation of the various S&P sector indices against the oil prices (Crude). Based on the the results below, you would conclude that materials and energy stocks should perform well with rising oil prices.

There again, it is a behaviour you would expect at the group level but it may not translate to each individual company within those groups (in particular in the materials sector where some would benefit and some would be detrimentally affected). You could get exposure to those sectors using ETFs, such as XLB and XLE in the US.

Or you could run the same analysis for each stock within the S&P 500 (or whatever index you are looking at) and create a portfolio with the stocks that are the most correlated with oil prices.

Sector                          Beta Oil Correl Oil Beta t-stat P-Value
S&P 500 Retailing Industry Gro  1.03    -0.32   -0.13   -3.87   0.000***
S&P 500 Food & Staples Retaili  0.60    -0.27   -0.08   -3.22   0.002**
S&P 500 Consumer Durables & Ap  1.19    -0.25   -0.10   -2.79   0.007**
S&P 500 Consumer Services Indu  0.84    -0.23   -0.06   -2.79   0.007**
S&P 500 Commercial Professiona  0.88    -0.23   -0.06   -2.53   0.015*
S&P 500 Real Estate Industry G  1.32    -0.20   -0.11   -2.25   0.028*
S&P 500 Pharm Biotech & Life S  0.67    -0.17   -0.06   -2.07   0.044*
S&P 500 Household & Personal P  0.54    -0.16   -0.06   -1.89   0.064
S&P 500 Banks Industry Group I  1.29    -0.18   -0.10   -1.86   0.069
S&P 500 Media Industry Group I  1.21    -0.15   -0.05   -1.84   0.072
S&P 500 Insurance Industry Gro  1.41    -0.18   -0.06   -1.78   0.081
S&P 500 Health Care Equipment   0.85    -0.13   -0.05   -1.52   0.134
S&P 500 Telecommunication Serv  0.59    -0.09   -0.04   -1.05   0.299
S&P 500 Capital Goods Industry  1.26    -0.10   -0.02   -1.03   0.308
S&P 500 Automobiles & Componen  1.92    -0.08   -0.07   -0.86   0.395
S&P 500 Transportation Industr  1.02    -0.06   -0.02   -0.69   0.494
S&P 500 Diversified Financials  1.55    -0.08   -0.03   -0.68   0.503
S&P 500 Utilities Industry Gro  0.46    -0.05   -0.02   -0.55   0.585
S&P 500 Food Beverage & Tobacc  0.58    -0.03   -0.01   -0.51   0.610
S&P 500 Semiconductors & Semic  1.16     0.04    0.02    0.45   0.658
S&P 500 Software & Services In  1.04     0.08    0.02    0.67   0.504
S&P 500 Technology Hardware &   1.15     0.08    0.02    0.75   0.456
S&P 500 Materials Industry Gro  1.29     0.34    0.10    3.99   0.000***
S&P 500 Energy Industry Group   1.00     0.54    0.25    6.97   0.000***

This is calculated over 10 years of monthly returns after removing the market component from the individual sectors.

The two important columns are:

  • the Oil Beta, which shows the relationship between that sector and oil prices (if the beta is 0.25 like for the Energy sector, you would expect that a 1% move in oil prices would result in a 0.25% outperformance of that sector over the S&P 500 on average)
  • the P-Value which gives the statistical significance of the relationship (a lower number = more significant) - it is customary to use 0.05 as a threshold (lines marked with a *).

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.