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Abstract:

Background Crude Oil is attributed as mother of all commodities because of its


importance in the manufacturing process. This is the reason it is said Energy in
general and oil in particular drives the world economy. Over the last 3 decades
prices of crude oil in international market( measured here by price of NYMEX) have
shown considerable fluctuations from the level of USD 26.3/bbl in 1985 to even the
heights of USD 140/bbl in 2008 and back to USD 43.5/bbl in 2015. However, this rise
took place mostly between January 2003 and July 2008, when the price reached
US$145/bbl. The post-2003 rise in oil price, which hit a record high of US$145/bbl in
July 2008, is ascribed largely to increasing demand for crude oil from Chinese and
other emerging economies.
Crude oil is one of the most necessitated worldwide required commodity which
directly or indirectly influences the economy of different countries. Any slight
fluctuation in the prices of crude oil affect the different economic variables and also
stocks of different industries. Rise in the crude oil prices coincided with the phase of
declining US dollar and a phase of stocks of different emerging countries (India in
this context).
Crude oil prices act like any other commodity, prices of which is determined by the
demand and supply mechanism. Studies have been conducted to observe the
impression of increase in crude oil prices to the economic growth in the OPEC
(organization of Petroleum Exporting countries).
India is the fourth largest consumer of crude oil in the world and satisfies its more
than 80% of the crude oil demand by importing the crude oil mainly from Middle
East countries. For India, a rise in global oil price may have a direct effect on the
inflation rate and the trade balance, leading to a higher current account deficit and
a deteriorating net foreign asset position. At the same time, a higher oil price may
induce wage demands to offset the higher cost of living. This may also lead to a
decline in private disposable income and corporate profitability, and thus reduce
domestic demand and stock prices while also pulling down the exchange rate.
Apart from the macro-economic variables Crude oil price volatility affects the
business management and stocks of major oil companies globally.
Crude oil volatility has impacted directly the profits and therefore the stocks of the
CAIRN INDIA ltd. Stock of crude oil moves in the same direction with the crude oil
price. During the oil shocks in the year 2008 stock of Cairn India was closed at INR
274.7 which was high by INR 50. Crude oil is one of the major factor that influences
the major decisions related to capital expenditures of the CAIRN INDIA ltd.
Objective: The main objectives of the report are followings:

To have the basic understanding of crude oil and global oil market.
To understand historical price movement of the crude oil and the impact of
major happenings on the price of crude oil.
To determine the major determinants of the price of crude oil.
To understand the correlation between different entities (gold, USD, NIFTY,
DOWJONES, Natural gas) and crude oil NYMEX.

To understand the impact of Oil volatility on macroeconomic variables in India


To understand the Impact of Oil volatility on Stock of CAIRN INDIA ltd.

Methodology: The study is conducted, using top-to-bottom approach, to


understand the nature of global oil market. The data is collected from internet and
the companys database.
After collecting the data a study is undertaken to analyze the impact of global
happenings on the price of crude oil. And also quantitative and statistical operations
will be used to derive the relation between different entities and crude oil prices.
After this the impact of crude oil on the macroeconomic variable of India will be
analyzed by analyzing the data available on GDP growth and Inflation. Apart from
this a study will be conducted on the Oil exploration company in India i.e. CAIRN
INDIA ltd followed by fsa analysis, financial modelling. And the conclusion will be
made on how the Oil volatility affects the prices of the stock of the company and its
profits.
Result: This report uses EIC (Economic- Industry- Company) approach to study the
impact of the price of one commodity on the global economy, oil industry and also
CAIRN INDIA. This report seeks to describe the position of global oil market and also
the Indian Oil companies.