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Oil is the single most important commodity that holds the position of a key factor in each and every economy of the world. The world’s richest nations are at their current positions just because of the oil factor. The importance of oil has reached such a level at which there is no country in the world, which doesn’t need oil and its by-products, and if somehow it doesn’t have much reserves of oil to meet their domestic demand, these nations are ready to import the product at any cost. Many nations have a huge share of their earnings constituted by oil exports only. Every industry requires oil to function properly either directly or indirectly as both crude oil and its by-products serve as their inputs. The extent of the commodity’s importance was shown to the world when the world’s most strong economies were shaken up as the oil prices shot up in 1973 and 1979 when the gulf countries refused to supply oil to the countries that were the supporters of Israel in its war with Egypt and Syria. Crude oil alone bears 60% share to meet the global energy needs in the current scenario. The reason for this high share in the primary energy consumption in the world is due to the advantages that oil has over the other constituents of primary energy such as diverse application, comparatively lesser harm to the environment, easy handling, lower capital costs and above all higher efficiency. Crude oil reserves on earth are estimated to be more than 1 trillion barrels that are mostly found in the Middle East, Eastern Europe, Africa and Central America, Middle East being the top reserve holder. It is a clear fact that oil is a limited resource and would finish off in a maximum of 80 years if the current rate of consumption continues. Of these 1 trillion barrels, the world produces around 75 million barrels per day. The largest crude oil producing country is Saudi Arabia followed by Russia and United States of America. The refining capacity of oil in the world as in 2002 was 4166 million tons. The consumption of crude oil in the world has been rising with the change in time and the technological improvements that are accompanying it. Oil is consumed all over the globe, consumption figures standing at 76 million barrels per day and United States of America consumes the maximum level of oil in the world. The major consumer countries of crude oil along with their consumption figures pertaining to the year 2006 are
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Impact of Crude Oil Prices on Sensex
• • • • • • • • • • •
United States of America (20.7 million barrels/day) China (6.5 million barrels/day) Japan (5.4 million barrels/day) Germany (2.6 million barrels/day) Russia (2.6 million barrels/day) India (2.3 million barrels/day) Canada (2.3 million barrels/day) Brazil (2.2 million barrels/day) South Korea (2.1 million barrels/day) France (2.0 million barrels/day) Mexico (2.0 million barrels/day)
Regarding the world trade situation, one important aspect is the presence of an organization namely OPEC that controls and regulates the exports and imports of most of the countries of the world. OPEC stands for ‘Organization of Petroleum Exporting Countries’ and the members include all the 11 major crude oil producing countries and nations that are highly dependent on the revenues from oil and oil products. As a matter of fact, OPEC nations have 75% of the world’s total crude oil reserves of 1 trillion barrels and control around 40% of the world oil production. OPEC member countries also dominate the world exports of crude oil contributing to 55% of the total world exports. The major crude oil exporting countries with their exporting figures are
• • • • • • • • •
Saudi Arabia* (8.73 million barrels per day) Russia (6.67 million barrels per day) Norway (2.91 million barrels per day) Iran* (2.55 million barrels per day) Venezuela* (2.36 million barrels per day) United Arab Emirates* (2.33 million barrels per day) Kuwait* (2.20 million barrels per day) Nigeria* (2.19 million barrels per day) Mexico (1.80 million barrels per day)
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Impact of Crude Oil Prices on Sensex
• • • • •
Algeria* (1.68 million barrels per day) Iraq* (1.48 million barrels per day) Libya* (1.34 million barrels per day) Kazakhstan (1.06 million barrels per day) Qatar* (1.02 million barrels per day)
In the above list, the countries with the * sign are the member countries of OPEC. The imports of crude oil are generally done by the countries, which do not have appropriate reserves of oil and are incapable of satisfying the domestic consumption demand. The following is list of the countries with their net import figures that are the major importers of crude oil in the world
• • • • • • • • • •
United States of America (12.1 million barrels per day) Japan (5.3 million barrels per day) China (2.9 million barrels per day) Germany (2.4 million barrels per day) South Korea (2.2 million barrels per day) France (1.9 million barrels per day) Italy (1.7 million barrels per day) Spain (1.6 million barrels per day) India (1.5 million barrels per day) Taiwan (1.0 million barrels per day)
1.2 The History of Crude Oil in World
The history of crude oil supply has been dominated by the time and place of discoveries, with enormous results on the history of the 20th century. The History of Crude Oil and Supply Oil has also been dominated by a few individuals, companies, and nations, with greed, superb intelligence, and unbelievable stupidity.
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The modern oil era began in northwest Pennsylvania in the mid-19th century, as shallow fields were tapped. The early days of the oil industry were characterized by boom and bust, as new discoveries first overwhelmed demand, then lagged behind it. Prices fell from $10 a barrel in January 1861 to 10¢ a barrel in December 1861, but were up to $7.25 a barrel again by September 1863, down to $2.40 in 1867. Fortunes were made and lost in boom towns and stock speculations that rivalled any in the gold industry. The innovation that allowed some control over the chaos was the oil pipeline. Barrels (real barrels, made of oak) were expensive, sometimes worth more than the oil they contained. They were expensive to transport on wagons, too. By 1866, pipelines, made of wood at first, had been built to the major producing fields, transporting oil to railheads where tanker cars could be filled. After that, there was only one real choice: the oil flowed to the nearest industrial city for refining, Cleveland, Ohio. It was the genius of John D. Rockefeller that found a way to take advantage of this situation, which was merely a matter of simple geography. The oil fields were scattered in rough country, owned by small-time entrepreneurs, and new discoveries were unpredictable in location and size. They were, however, likely to occur in the same region, and they would be connected by pipelines to the existing rail network, and funneled to Cleveland. After refining, the kerosene was marketed nation-wide. Rockefeller reasoned that the way to control the oil industry was within the transportation and refining section. In particular, refineries were comparatively long-term investments. At the age of 20, Rockefeller had entered business just as the Civil War began, and made a lot of money supplying the Army with wheat, salt, and pork. In 1863 Cleveland was connected with the Pennsylvania oilfields by rail, and Rockefeller and a partner opened an oil refinery in Cleveland. In 1866 he bought out his partner, and at the age of 26 owned the largest refinery in the city. Using the size of his shipments to negotiate low prices for railroad transport, outcompeting his rivals for price and quality,
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and kerosene was the fourth-largest American export commodity. about 90% of vehicular fuel needs are met by oil. Today. and the United States. and all the pipelines flowing out of the Pennsylvania oilfields. in 1911 the US Government used anti-trust legislation to break up the Standard company. while Shell was a major player in much of the rest of the world. By 1890. In the 1880s. political. Navnirman Institute of Management 5 . and military thinking. A large portion of the world's total oil exists as unconventional sources. Petroleum also makes up 40% of total energy consumption in the United States.5% coming from the Arab 5: Saudi Arabia. but is responsible for only 2% of electricity generation. Qatar and Kuwait. too: half of the kerosene it produced was exported. While significant volumes of oil are extracted from oil sands. Iraq. Standard was exporting kerosene. it was producing or buying over 80% of the oil produced in the United States. and the World War of 1914 to 1918 brought to everyone's attention the fact that petroleum was now vital to waging and winning wars. and that situation continues today. and refining and selling it. Three major events altered this situation: in 1901 the great Spindletop gusher brought Texas oil into the picture. About 80% of the world's readily accessible reserves are located in the Middle East. UAE. amalgamating and controlling the refining side of the industry. Russia. The top three oil producing countries are Saudi Arabia. Petroleum's worth as a portable. Standard moved into oilfield production too. mainly to Europe.Impact of Crude Oil Prices on Sensex Rockefeller and his Standard Oil Company became the largest oil company in North America. the Standard Oil Trust controlled the oil industry of the Americas. with 62. By 1879 Standard Oil controlled 90% of the refining capacity in the United States. dense energy source powering the vast majority of vehicles and as the base of many industrial chemicals makes it one of the world's most important commodities. The scene was set for oil to dominate much economic. At the end of the century. such as bitumen in Canada and Venezuela and oil shale. eventually bringing Gulf and Texaco into the big leagues.
One of the first refineries was established at Baku in Russia and it became the world’s largest oil producing refinery. To extract that oil from under the earth’s crust. the process of distillation of kerosene with the help of coal and rock oil was invented. first oil wells of around 243 meters were dug up in that region with the help of bamboo poles possessing metal tools at their end. As late as in 1889. First crude oil refinery in India was set up in Digboi in1901. Canada's oil sands are not expected to provide more than a few million barrels per day in the foreseeable future. The oil that the early Chinese people found was found to have extremely good medicinal value and was used in the salt form. The crude oil was also used for the lighting purposes in Ancient Persia.N Semyonov built the first ever modern oil well at the same place in 1848. A Russian engineer F. logistical and technical hurdles remain. People got to know the vast amount of oil that was hidden under the earth’s surface as many geographers started predicting it in that time. Then the exploration and Navnirman Institute of Management 6 . man discovered new and diversified uses of oil and hence the discovery of new oil fields became an important requirement. The history of crude oil dates back to the 3rd or 4th century A. Thus. With the time. the streets of that city were paved with tar that was easily available in the natural oil fields in that region. as oil extraction requires large amounts of heat and water. the presence of oil in India was discovered in Digboi in Assam.3 History of crude oil in India India was not known to the world in the context of crude oil and it’s by-product production. Up till 1950s coal had dominance among the primary energy constituents but crude oil took over the leadership in a short span of time and has still maintained its reputation.D when the presence of oil was first discovered in China. Production of oil became commercialized and it started an era of establishment of oil refineries throughout the world. All this time oil had a limited use until in 19th century. 1. When the city of Baghdad was constructed in the 8th century. making its net energy content quite low relative to conventional crude oil.Impact of Crude Oil Prices on Sensex particularly in Canada.
In 1983 the company became a public sector undertaking of the Government of India. and traces its roots back to Oil India Private Ltd.. From well completion to wellbore Navnirman Institute of Management 7 . The story of Oil India Limited (OIL) traces and symbolizes the development and growth of the Indian petroleum industry. Oil India Private evolved into Oil India Ltd. In 1958 and 1974. whole of the sector was nationalized. over 5 MMSCMD of Natural Gas and over 50. which was an equal partnership between Burmah Oil and Government of India. development and production of crude oil and natural gas. OIL is engaged in the business of exploration.000 Tones of LPG annually. OIL is the pioneer in exploration and production of hydrocarbons in India. Most of this emanates from its traditionally rich oil and gas fields concentrated in the Northeastern part of India and contribute to over 65% of total Oil&Gas produced in the region. since the discovery of Digboi oilfield in 1889. crossing many milestones. Oil India (OIL) is a large state-owned oil and gas company in India under the administrative control of the Ministry of Petroleum and Natural Gas of the Government of India. OIL has come far. heavy oil / bitumen in 1991 and started production of gas in 1996. holding two-thirds of equity and Government of India holding one-third. The Company presently produces over 3.2 MMTPA (million tons per annum) of crude oil. riverbeds of Brahmaputra and offshore Saurashtra. In Rajasthan. transportation of crude oil and production of liquid petroleum gas. It is possibly the only company to do so. OIL discovered gas in 1988. The company has accumulated over a hundred years of experience in the field of oil and gas production. The search for newer avenues has seen OIL spreading out its operations in onshore / offshore Orissa and Andaman. From the discovery of crude oil in the far east of India at Digboi. deserts of Rajasthan. Initially the major international companies were given the job to explore and produce oil in the country but after the shock in oil prices in 1973.. Assam in 1889 to its present status as a fully integrated upstream petroleum company. formed in 1959 with The Burmah Oil Company Ltd. two more places for crude oil production were identified namely Cambay onshore basin and Bombay offshore basin.Impact of Crude Oil Prices on Sensex production activities were limited to the North Eastern part of the country. plains of Uttar Pradesh.
mostly. sulfur level and also the density of the oils in some cases. Pasighat and other Trust Belt areas. as ‘sweet’ or ‘sour’. which are logistically very difficult and geologically complex. crude oil is classified on the basis of location only as oils from different locations have different characteristics and they are also named after the places of origin. operation and maintenance of modern surface handling facilities. It has emerged as a consistently profitable international company with exploration blocks as far as Libya and sub-Saharan Africa.5 degrees Navnirman Institute of Management 8 . which is called the API gravity. The main types of crude oil according to their geographic locations are 1.Impact of Crude Oil Prices on Sensex servicing. In recent years. North Sea Crudes – Considered as bench mark • API gravity – around 38. But. The company has over 100. OIL has stepped up E & P activities significantly including Gas monetization in the North-East India. For differentiation depending upon the gravity of oils.000 square kilometres of license areas for oil and gas exploration. Bongaigaon and Barauni refineries and a branch line to feed Digboi refinery. seismic surveys are being carried out in Manbhum. OIL has set up the NEF (North East Frontier) project to intensify its exploration activities in the frontier areas in North East. The Company operates a crude oil pipeline in the North East for transportation of crude oil produced by both OIL and ONGCL in the region to feed Numaligarh. installation. They are also divided as per the sulfur level present in them. Guwahati. the American Petroleum Institute (API) provides with a basis to measure it’s density. Categories of crude oil The various types of crude oils are classified according to their geographical originations. The crude oils are then termed as ‘heavy’ or ‘light’ oil. the company has the skill and expertise to manage the entire range of operations required for onshore oil and gas production. Presently.
North West Shelf. Wyoming Sweet. Mars. P .4 List of Main Oil Producing Countries Navnirman Institute of Management 9 . West Texas Sour (WTS). Statfjord and Flotta 2. Lower Zakum. P-Plus Line 63. Murban. Qatar Land. Kern River 5. Brass River.0. around 0.36% Examples . United States Crudes – • • • API gravity – variable. Qatar marine and Banoco Arab Medium 4. Heavy Louisiana Sweet (HLS). Cossack.Tapis. around 39. North Sea Basket. Light Louisiana Sweet (LLS).around 35 degrees Sulfur level – 0. Forcados and Cabinda 3.08% Examples .West Texas Intermediate (WTI).24% Examples . Miri etc 1. Basrah Light. Engene Island.Brent.6 degrees Sulfur level – variable.Impact of Crude Oil Prices on Sensex • • Sulfur level . Osberg. Qua Iboe.Plus WTI. Poseidon. Persian Gulf Crudes – • • • API gravity –around 37 degrees Sulfur level – 1. Ekofisk. Escravos. Forties. Line 63. Asia Pacific Crudes – • Examples .Bonny Light. WTI Calendar Delta. West African Crudes – • • • API gravity . Belinda. Bonito.2% Examples .Dubai and Oman assessments. Alaska North Slope (ANS). Jabiru. Thums. Mars MOC and Mars.
Iran … 4.3%) 5. using up 1. with Saudi Arabia still topping the list as per usual.9 million barrels per day.9 million bpd (12.8%) 9. Venezuela … 2. Mexico … 3.6%) Navnirman Institute of Management 10 .8%) 6. World consumption of oil per day was 80. Russia has moved up from previous years.Impact of Crude Oil Prices on Sensex The definitive list of top ten oil producing countries in the world for the year 2008? List of Main World Oil Producing Countries in 2008 As you can see from the top ten list below. 1.3 million bpd (10. Norway … 3 million bpd (3.8 million bpd (3.7%) 7.3 million barrels for the same period. According to April 2008 statistics from the Central Intelligence Agency’s World Factbook. United States … 8. Saudi Arabia … 11 million barrels per day (13.7 million bpd (4.1 million bpd (3.2 million bpd (5. Russia … 9.7% more than what was produced.5%) 4. Canada … 3.9% of estimated world total) 2.9%) 8.5%) 3. China … 3. global oil production in 2005 was 78.8 million bpd (4.
Brazil’s oil consumption outpaces its fuel production by almost 25%. Nigeria … 2.1%) 13.7 million bpd (2.2% of estimated world total) 12. Although rich in natural resources.2%) 17.7 million bpd (3. Brazil … 1.4%) Other Big Oil Producing Countries in 2008 . Kazakhstan … 1. United Kingdom … 1.3 million bpd (1. Navnirman Institute of Management 11 . India consumes two-thirds more oil than its produces. America consumes a third more than domestic oil production.4 million bpd (1.6%) 15. Libya … 1.4 million bpd (3. Iraq … 2. Algeria … 2.7%) 19.(11 to 20) 11.4%) 16. Mexico’s oil production was 39% greater than domestic consumption while Canada output 35% more oil than it used in 2005. Angola … 1.6%) 20.5 million barrels per day (3.11 million bpd (2.6 million bpd (2%) 18. Similarly. United Arab Emirates … 2.Impact of Crude Oil Prices on Sensex 10. China generated about 16% more oil than it consumed.7%) 14.1 million bpd (1.9 million bpd (2.1 million bpd (2. Kuwait … 2. In contrast. Qatar … 1.4%) Russia produces about 240% more oil than it consumes.
5 How Crude Oil is Bought and Sold? How Crude Oil is Bought and Sold? Crude oil is traded on the main world futures exchanges being the NYMEX and ICE futures exchanges. or indeed losses.6 Production of Crude Oil in India India is not among the major producers of crude oil. as oil futures prices can swing wildly and have done so for the last few years. India currently has an estimated quantity of 5. companies and individuals alike. At this production level. Crude oil is bought and sold in vast quantities (oil is the most traded commodity on the planet) by investors. the production of oil and as a result the production of its by-products in India has increased in the recent past due to exploration and findings of new oil reserves. a good example is gold. however oil prices offer larger gains. However.8 million barrels per day. as it doesn’t have much oil reserves.Impact of Crude Oil Prices on Sensex 1. That is why it generally depends on imports of crude oil from other countries. 1. These days investors maybe looking to broaden their portfolios by investing in commodities. the oil reserves in India would last for around 29 years. The major oil reserves of the country are situated at • • • • • Mumbai high (Mumbai) Upper Assam (Assam) Cambay (Gujarat) Krishna-Godavari basin (Andhara Pradesh) Cauvery basin (Tamil Nadu) Navnirman Institute of Management 12 . There are also several trading service providers who offer oil trading at leverage to individuals via internet futures trading accounts.4 billion barrels of oil reserves out of which it produces around 0.
Impact of Crude Oil Prices on Sensex • • Nagaland Arunachal Pradesh The largest crude oil producing oilfield is the Mumbai high field that produces around 260000 barrels per day.1 million barrels per day. The country has much depended on coal to satisfy its energy needs in the earlier times but the use of crude oil and gas is taking over the dominance of coal with the change in time. The refining sector in India is held by both public and private sector. The country imports over 1. India generally imports Oman-Dubai sour grade crude.6 lakh barrels per day.8 million barrels per day mark.7 Indian Crude Oil Market India is one of the non-OPEC countries much dependent on its imports to fulfill the domestic consumption demand as it has a much lower level of production. 2/3rd share is bagged by the offshore reserves as compared to onshore reserves. This leaves the country with a huge deficit in the demand-supply scenario and thus 70% of the consumption is met through imports. The refining capacity of crude oil in India is estimated at around 2.5 million barrels per day that place it at the 9th position among the largest importers of the world. India has around 5. Mumbai high is the largest oil-producing oilfield in India with a production of 2. major share of production i. India is a developing country and the requirement for the oil as a primary energy constituent from the industries in the country is at its peak. Regarding the consumption pattern of oil in India. Oil and gas contribute to around 45% of the country’s total energy consumption.4 billion barrels of oil reserves with it and the domestic production has increased in the recent past to reach the 0.e.2 million barrels per day. The refining capacity of crude oil in India is over 2.1 million barrels per day. public sector being the dominating one. Brent dated sweet crude and Bonny light crude. Among these production centers. Though the Indian production has Navnirman Institute of Management 13 . 1. it is the 6th largest consumer country in the world having a consumption of 2.
The major units pertaining to the oil sector in India are • • • • • • • Indian Oil Corporation (Public sector) Oil and Natural Gas Corporation (Public sector) Reliance India Ltd (Private sector) Essar Oil Refinery (Private sector) Bharat Petroleum Corporation Ltd (Public sector) Hindustan Petroleum Corporation Ltd (Public sector) Manglore Refineries and Petrochemicals Ltd (Public sector) Market Influencing Factors • • • • • • Production of the major oil producing countries Various climatic or political supply fluctuations World oil demand Fluctuations in the value of dollar Imports from various world oil organizations like API. A new private sector has emerged after the loosening of control by the government.Impact of Crude Oil Prices on Sensex increased in the recent times. The countries from which India imports crude oil are • • • • • Venezuela Nigeria Sudan Iran Kuwait The Indian oil-refining sector has been regulated by the government historically and is still dominated.2%. DOE Refinery fire Major trading centers of crude oil The major trading centers of crude oil in the world are Navnirman Institute of Management 14 . the imports were raised by 5% making due to the raised Indian demand of around 4.
Higher trade balance will adversely impact the fiscal deficit. The major gap created between demand and supply of crude oil is forcing the price curve of crude oil to rise in upward direction. These factors obviously affect our GDP growth rates. Higher import bill directly and indirectly impacts the rupee. turned from deficit into surplus over the last few years.Hence the stock market is impacted. The crude oil price impacts two key aspects of our economy: (1) The import bill Since.9 Factor affecting Crude Oil Prices Production: Navnirman Institute of Management 15 . 1. All these factors individually and collectively could have a negative Impact on the stock market. is defined Trade as Exports minus Imports. and hence evens the rupee.Impact of Crude Oil Prices on Sensex • • • New York Mercantile Exchange (NYMEX) International Petroleum Exchange of London (IPE) Tokyo Commodity Exchange (TOCOM) In India.8 Price of Crude Oil The high demand economies of crude oil are putting undue pressure on the available fixed resources. which Balance minus Net Invisibles. which in turn will impact the interest rates. while inflation impacts interest rates. which has which been has perpetually running at a deficit and possibly wipe out our current account surplus. The increasing import bill will widen our Trade Balance. we are a net importer of oil. 1. crude oil is traded at various commodity exchanges namely Multi Commodity Exchange of India and National Commodity and Derivatives Exchange Ltd. (2)Inflation Since petroleum products are key constituents of Wholesale and Consumer Price Inflation Index.
Ecuador. oil producers and consumers get stock their crude oil for their future requirements. Iran. OPEC has maintained its headquarters in Vienna since 1965. Nigeria. and hosts regular meetings among the oil ministers of its Member Countries. Navnirman Institute of Management 16 . This gives rise to speculation on price expectations and sale chances in case any unexpected thing cracks during supply and demand equations. Libya. Indonesia withdrew in 2008 after it became a net importer of oil. Saudi Arabia. 1. Demand & Supply: With a sharp rise in economic demand requirement of crude oil is increasing to manifold in context to the limited supply. Inventory: In throughout the world. Any upward or downward movement in inventory level shoots up volatility in price index of crude oil.10 'Organization of the Petroleum Exporting Countries' The 'Organization of the Petroleum Exporting Countries' (OPEC. Iraq. Any decision taken by OPEC nations for increasing or decreasing production of crude oil impacts the price level of crude oil in international commodity markets. the United Arab Emirates. Qatar. Like hurricane Katrina and other type of tropical cyclone have hit the major portion of globe. which as a result driven the crude oil prices to reach at its peak. Kuwait.Impact of Crude Oil Prices on Sensex The OPEC nations are the major producer of world's crude oil. which generates lot of changing movement in sensex. Angola. but stated it would likely return if it became a net exporter again. every policy made by such countries related to the crude oil prices has their influence on crude oil prices. global community have witnessed many events which in turns have volatility effects on the price level of crude oil. pronounced /ˈoʊpɛk/ OH-pek) is an intergovernmental organization of twelve developing countries made up of Algeria. and Venezuela. Natural Causes: In prevent years. Therefore.
OPEC members collectively hold 79% of world crude oil reserves and 44% of the world’s crude oil production. As early as 2003. from OPEC’s point of view. Although largely political explanations for the timing and extent of the OPEC price increases are also valid. respectively. Canada. Arab members of OPEC alarmed the developed world when they used the “oil weapon” during the Yom Kippur War by implementing oil embargoes and initiating the 1973 oil crisis. concerns that OPEC members had little excess pumping capacity sparked speculation that their influence on crude oil prices would begin to slip. the Gulf of Mexico. and a fair return on their capital to those investing in the petroleum industry.8%. affording them considerable control over the global market. This explanation encompasses OPEC actions both before and after the outbreak of hostilities in October 1973.8% and 14. since it became effective in determining production and prices. individually and collectively. and market modernization. giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries. members of the OECD and the PostSoviet states produced only 23. The next largest group of producers. As of November 2010.” OPEC's ability to control the price of oil has diminished somewhat since then. of the world's total oil production.Impact of Crude Oil Prices on Sensex According to its statutes. Navnirman Institute of Management 17 . one of the principal goals is the determination of the best means for safeguarding the organization's interests. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations. due to the subsequent discovery and development of large oil reserves in Alaska. and concludes that “OPEC countries were only 'staying even' by dramatically raising the dollar price of oil. an efficient and regular supply of petroleum to consuming nations. these changes were triggered largely by previous unilateral changes in the world financial system and the ensuing period of high inflation in both the developed and developing world. the opening up of Russia. OPEC's influence on the market has been widely criticized. the North Sea.
non-renewable resource. Navnirman Institute of Management 18 . naturally enough. no matter what the price of oil. extracted the easier to reach . World Crude Oil Reserves. all oil fields eventually reach a point where they become economically. Furthermore. oil production becomes ever more likely stop growing and begin a terminal decline. in smaller fields and of lesser quality. Running Low? Once we have used up about half of the original reserves. The oil pumped first was on land. under pressure. If it takes the energy of a barrel of oil to extract a barrel of oil. It therefore takes ever more money and energy to extract.Impact of Crude Oil Prices on Sensex 1. The remaining oil is more likely to be off-shore. cheap crude oil first. and energetically. a finite. Under these conditions. Oil companies have. refine and transport. near the surface. far from markets. then further extraction is pointless. no longer viable.11 World Crude Oil Reserves World crude oil reserves. one that has powered phenomenal economic and population growth over the last century and a half. light and 'sweet' (meaning low sulfur content) and therefore easy to refine. the rate of production inevitably drops.
However. reaffirming the region's promising potential for hydrocarbon exploration. are bringing about a rebirth for the region in the eyes of international oil companies that had curbed investment due to political instability and aging fields. This year's discoveries .12 Global Crude Oil Discoveries What were the main crude oil and gas discoveries for the year ending 2008? Global Crude Oil Discoveries for 2008 The year 2008 was marked by record crude oil prices and the US credit crisis turning into a global financial crisis leading to a slowdown in the global economic growth. The price of crude oil as highly volatile in 2008 rising to $147 by mid 2008 and crashing down to less than $ 40 by the end of the year. Most models project decline rates of 2-4%. Navnirman Institute of Management 19 . Latin America still faces some of the same challenges that have repelled investors before.five in Brazil. which can be taken up for future exploration activities. But despite its considerable oil and gas deposits. 2008 was also a year of significant oil and gas discoveries.Impact of Crude Oil Prices on Sensex Whether or not we've passed the peak of crude oil reserves. Some of the discoveries were made in more established regions and basins. 1. Whereas 10% or more would soon implode the global economy. while some discoveries also highlighted the potential regions or basins.and other major finds in recent years. one in Peru and one in Bolivia . Seven of the ten largest oil and-gas discoveries worldwide in 2008 occurred in Latin America. a more significant question may be: What will be the future rate of decline of oil production? Some form of co-ordinated adaptation might be possible if the annual drop in available oil was no more severe than 1-2% a year.
For the world's oil market. aging oil fields and accelerating depletion rates remain a relentless cancer in the industry.Impact of Crude Oil Prices on Sensex 1. fuel or gasoline in such vast quantities as current levels seem to be having a warming effect. Crude Oil and Global Warming. hence not all crude's fault. Is it all Crude's Fault? Oil is a major player when looking at burning fossil fuels and global warming. Crude oil found in the earth is a part of the natural carbon cycle and its removal and redeposition has been taking place on the planet for hundreds of millions of years since life forms initially became productive enough to leave deposits of organic material behind in sedimentary rocks. While slower demand growth will take some pressure off the supply challenge.13 Crude Oil and Global Warming Global warming means that most global countries should no longer burn oil. Will we be looking at an even lower demand growth rate in the future? Only time will tell. chief economist at the IEA. about a peak in global oil production coming much sooner in time than the agency has publicly Navnirman Institute of Management 20 . slower demand growth may be perceived as a relief valve from pending peak oil concerns. however coal is still widely burned at massive levels and is still increasing. The recent media flap over comments by Fatih Birol.
(5-6 weeks time ) Now it is advise to book profit 70% of delivery calls .14 Relationship between crude oil and Sensex Relationship between crude oil and Sensex. So it is us dollar and crude oil both to decide to market trend. the oil industry’s focus increasingly will be on the critical issue of how to get more from existing reservoirs and how best to extract the lower quality unconventional oil resources around the world. There will be great combinations of crude oil and stock market since major world economy are base on crude oil and US dollars. If you look at past history Indian stock market has started to shooting up around May 2003 to Dec 2007 As per statistic around 550% gain has been registered on monthly closing levels which has come down to 270% if we take 52 weeks levels.If you remember that during first week of July 2008 we have recommended to invest in selected 16 stocks for 45 days now 45 days are over time to book profit . Fortunetly last couple of weeks crude oil has shown big dip and Us dollars shown big gain against Euro. If you look at their balance sheets of all major oil companies at world levels gain have not been registered because of US dollars depreciations.15 What causes low oil prices? Navnirman Institute of Management 21 . 1.Impact of Crude Oil Prices on Sensex acknowledged may be the tip of the iceberg highlighting that depletion has displaced growth as the principal driver for the global oil business. It is easy to understand that crude oil is directly link with inflations and crude oil but relationship between crude oil and Sensex is not so easy. if we take current example last 40 days crude oil has come down approximately 22% and Sensex has shoot up around 23%. While finding new fields will remain important. result is with us Stock market up by 23% in few weeks. what is this all about? How we can relate price of crude oil and Sensex always and every time? If crude oil has gained it all time high then oil-producing companies should also share success story of crude oil shoot up at world levels. in Dec 2007 it was below $100 and gone up it's all time highest levels$146 in June 2008 still Indian stock market was keep shooting up like rocket till Dec 2007inpite of around gain of crude oil ($25 to $95 till Dec 07). Now look at crude oil statistics Crude oil started his upward journey from US$ 25 in April 2003. 1.
Impact of Crude Oil Prices on Sensex Low prices of crude oil can be caused by a number of factors. it could be due to an imbalance between supply and demand . labour disputes (strikes) as well as other disruptions to production including war and natural disasters. oil supplies could be limited in the longer term. increasing demand. consumers will also suffer if the oil industry is unprofitable and unattractive to investors. then prices can fall and all oil producers will suffer. thus raising prices.as purchased by end consumers such as motorists . Crude oil prices react to the balance of demand and supply in the short term. OPEC's aim at all times is to maintain steady supplies of oil to consumers. 1. However. Other factors influencing the price of crude oil include accidents. Sentiment is also an important factor: if traders in the oil market believe there will be a shortage of oil supplies. they may raise prices before a shortage actually occurs. Therefore. If oil production rises faster than demand.16 What causes high crude oil prices? High crude oil prices could be due to a shortage of oil supplies. bad weather. OPEC cannot be expected to achieve this on its own. High prices for oil products . taxes have more influence over the price of oil products. When oil taxes are Navnirman Institute of Management 22 . OPEC Member Countries have always tried to adjust their crude oil supplies to improve the balance between supply and demand. such as taxation. Most non-OPEC oil producers supply as much oil as they can. In the long run.are more likely to reflect other factors. Crude oil now represents less than a quarter of the price of oil products in many countries. Basically. and the rate of investment in the longer term. while securing a reasonable return for its Member Countries. If investment is not made far enough in advance. This makes it difficult for OPEC to maintain stability in the oil market and results in losing market share and potential revenue for the organization. halting transport of oil from producers.too much supply or too little demand.
If oil prices are too high. Alternative forms of energy would also become more costcompetitive. end consumers often mistakenly blame the oil producers. forcing prices to go excessively high. oil consumers and the world at large. Oil prices that are too high or too low are clearly unhelpful for oil producers.leading back to inflation. That is why OPEC makes quite sure that the market is not undersupplied with oil. If oil prices are too low. It also speaks to other oil producers to encourage Navnirman Institute of Management 23 . OPEC regularly meets with other oil producers and with consumers in an effort to improve understanding and trust in the oil industry and to seek policies and measures that do not create unnecessary economic hardship for oil producers or consumers. the cost of goods and services.especially the developing countries that produce oil. then these goods and services become more expensive and economies experience inflation. water and shelter. Oil is the foundation for the plastics and petrochemical industries. If prices were too low.Impact of Crude Oil Prices on Sensex raised. Oil is fundamental to the welfare of the industrialized world and it is a major component of the farming industry. and also that the market is not over-supplied so that prices go too low. The price of oil is reflected in most of the things we do. OPEC seeks a stable oil market. consumers would waste this non-renewable resource. It impacts on the price of transport. without sudden price changes or excessively high or low prices. including food. but oil producers would eventually increase their supplies and prices would come back down. but it is really their own governments that are responsible. 1. investors would not be attracted to the industry and oil producers would suffer .17 What happen if oil prices go up or down? The world lives on oil. such as the OPEC Member Countries. and the availability of many products. supplies would eventually fall until there was a price shock .
was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing large. first compiled in 1986.18 BSE Sensex History What is the BSE Sensex? The BSE Sensex Index is the value-weighted average for the Bombay Stock Exchange. The 'BSE SENSEX' is a value-weighted index composed of 30 stocks and was started on January 1. reasonable prices. Since these baskets of stocks reflect the broader Indian Stock Market. 1. The Sensex is comprised of the 30 blue chip stocks from the Bombay Stock Exchange and is the equivalent to the Dow Jones in India. representative of various sectors. Navnirman Institute of Management 24 . It consists of the 30 largest and most actively traded stocks. The Sensex is the oldest index in India. These companies account for around fifty per cent of the market capitalization of the BSE. 1986. The base value of the sensex is 100 on April 1. The Sensex is regarded as the pulse of the domestic stock markets in India. These top 30 stocks account for one-fifth of all the market capitalization on the Bombay Stock Exchange. It is also why OPEC talks to oil consumers to encourage them to adopt fair and equitable policies that do not discriminate against oil. History of the BSE Sensex The Sensex started with a base value of 100 and tracking began for the index on April 1. We would all suffer without steady supplies of oil at stable. the Sensex is recognized around the world as the key indicator for the health of the Indian economy. The Sensex officially began being published to the world in April 1984. 1979. well-established and financially sound companies across key sectors. The base year of SENSEX was taken as 1978-79. on the Bombay Stock Exchange.Impact of Crude Oil Prices on Sensex them to avoid over-supplying the market. 1979. SENSEX. and the base year of BSE-SENSEX is 1978-79.
all major index providers like MSCI... Bharti Airtel Ltd.. State Bank of India. DLF Ltd.. Wipro Ltd. Tata Motors Ltd. real estate caught the fancy of the investors. the Indian market witnessed a huge frenzy in the 'TMT' sectors.. Cipla Ltd. SENSEX is being calculated on a free-float market capitalization methodology.. S&P and Dow Jones use the free-float methodology. The growth of the equity market in India has been phenomenal in the present decade.19 Maintenance of SENSEX One of the important aspects of maintaining continuity with the past is to update the base year average.... Small wonder. ITC Ltd. FTSE. Mahindra & Mahindra Ltd. The base year value adjustment ensures that replacement of stocks in Index. Infosys Technologies Ltd. As the oldest index in the country. It is scientifically designed and is based on globally accepted construction and review methodology.Impact of Crude Oil Prices on Sensex SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. Navnirman Institute of Management 25 . The BSE SENSEX consistes of the following companies: Bajaj Auto Limited. Sterlite Industries (India) Ltd. Right from early nineties.. ONGC Ltd.... Tata Steel Ltd.. Tata Power Company Ltd. Jindal Steel & Power Ltd.. NTPC Ltd.. Larsen & Toubro Ltd. The "free-float market capitalization-weighted" methodology is a widely followed index construction methodology on which majority of global equity indices are based. ICICI Bank Ltd. In the late nineties. One can identify the booms and busts of the Indian equity market through SENSEX. Reliance Infrastructure Ltd. Hindalco Industries Ltd... it provides the time series data over a fairly long period of time (from 1979 onwards). 1. the stock market witnessed heightened activity in terms of various bull and bear runs. Jaiprakash Associates Ltd. Since September 1.. Reliance Industries Ltd. More recently.. Hindustan Unilever Ltd.. 2003. HDFC.. Reliance Communications Ltd. Maruti Suzuki India Ltd. STOXX.. Bharat Heavy Electricals Ltd. HDFC Bank Ltd. Tata Consultancy Services Ltd. Hero Honda Motors Ltd.... the SENSEX has become one of the most prominent brands in the country. SENSEX has captured all these happenings in the most judicious manner.
The beauty of maintenance lies in the fact that adjustments for corporate actions in the Index should not per se affect the index values. a minimum listing history is not required. In the event that a company is listed on account of a merger / demerger / amalgamation.Impact of Crude Oil Prices on Sensex additional issue of capital and other corporate announcements like 'rights issue' etc. (excluding companies classified in Z group. do not destroy the historical value of the index. The BSE Index Cell ensures that SENSEX and all the other BSE indices maintain their benchmark properties by striking a delicate balance between frequent replacements in index and maintaining its historical continuity. Equities of companies listed on Bombay Stock Exchange Ltd. This is done automatically on the 1. if the average free-float market capitalization of a newly listed company ranks in the top 10 of all companies listed at BSE.20 SENSEX . Listing History: The scrip should have a listing history of at least three months at BSE. During trading hours. fund managers. Navnirman Institute of Management 26 . scrips objected by the Surveillance department of the Exchange and those that are traded under permitted category) shall be considered eligible 2. listed mutual funds. market participants and members of the BSE Governing Board. value of the Index is calculated and disseminated on real time basis.Scrip Selection Criteria 1. scrips suspended on the last day of the month prior to review date. The BSE Index Cell does the day-to-day maintenance of the index within the broad index policy framework set by the BSE Index Committee. An exception may be granted to one month. The BSE Index Committee comprises of capital market expert. • On-Line Computation of the Index basis of prices at which trades in Index constituents are executed.
21 Understanding Free-float Methodology Navnirman Institute of Management 27 . 1. so long as the remaining list has more than 30 scrips.50% shall be excluded 9. The scrip should have been traded on each and every trading day in the last three months at BSE. Exceptions can be made for extreme reasons like scrip suspension etc. Track Record: In the opinion of the BSE Index Committee. The filtered list of constituents selected through Step 5 (which can be greater than 75 companies) is then ranked on absolute turnover (avg. all companies included within the SENSEX should have an acceptable track record. 3 months). 8. All remaining companies will be sorted on sector and sub-sorted in the descending order of rank on free-float market capitalization. Any company having a weight within this filtered constituent list of <0. 5. 11. are excluded. Companies that have reported revenue in the latest four quarters from its core activity are considered eligible.Impact of Crude Oil Prices on Sensex 3. 10. 4. 3 months) are selected as well as any additional companies that are in the top 75 based on full market capitalization (avg. From the list of constituents selected through Steps 1-4. Any company in the filtered. 6. sorted list created in Step 6 that has Cumulative Turnover of >98%. 7. 3 months). the top 75 companies based on free-float market capitalization (avg. The filtered list calculated in Step 7 is then sorted by free float market capitalization. Industry/Sector Representation: Scrip selection will generally attempt to maintain index sectoral weights that are broadly in-line with the overall market.
• • • Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. It aids active managers by enabling them to benchmark their fund returns vis-Ã -vis an investible index. Major advantages of Free-float Methodology • A Free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market. This improves market coverage and sector coverage of the index. strategic holding and other locked-in shares that will not come to the market for trading in the normal course. A Free-float index aids both active and passive investing styles. In other words. For example. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. government holding. the market capitalization of each company in a free-float index is reduced to the extent of its readily available shares in the market. Free-float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market. Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index. Being a perfectly replicable portfolio of stocks. companies with large market capitalization and low free-float cannot generally be included in the Index because they tend to distort the index by having Navnirman Institute of Management 28 . under a Full-market capitalization methodology.Impact of Crude Oil Prices on Sensex Concept Free-float methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in the index. Subsequently all BSE indices with the exception of BSE-PSU index have adopted the freefloat methodology. It generally excludes promoters' holding. a Free-float adjusted index is best suited for the passive managers as it enables them to track the index with the least tracking error.
Specifically. S&P and STOXX have adopted the same. which is followed by Foreign Institutional Investors (FIIs) to track Indian equities. Definition of Free-float Shareholding of investors that would not. a leading global index provider. is also based on the Free-float Methodology. in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in freefloat.Impact of Crude Oil Prices on Sensex an undue influence on the index movement. • Globally. the following categories of holding are generally excluded from the definition of Free-float: • Shares held by founders/directors/ acquirers which has control element Shares held by persons/ bodies with "Controlling Interest" Shares held by Government as promoter/acquirer Holdings through the FDI Route Strategic stakes by private corporate bodies/ individuals • • • • Navnirman Institute of Management 29 . However. NASDAQ-100. FTSE. shifted all its indices to the Free-float Methodology in 2002. since only the free-float market capitalization of each company is considered for index calculation. The MSCI India Standard Index.QQQ is based on the Free-float Methodology. the underlying index to the famous Exchange Traded Fund (ETF) . under the Free-float Methodology. MSCI. the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI. it becomes possible to include such closely held companies in the index while at the same time preventing their undue influence on the index movement.
If a SENSEX constituent has not traded at all in a day. If a SENSEX constituent has not traded in the last 30 minutes. then its last day's closing price is taken for computation of Index closure. the last traded price is taken for computation of the Index closure. Navnirman Institute of Management 30 .Impact of Crude Oil Prices on Sensex • Equity held by associate/group companies (cross-holdings) Equity held by Employee Welfare Trusts Locked-in shares and shares which would not be sold in the open market in normal course. • • Index Closure Algorithm The closing SENSEX on any trading day is computed taking the weighted average of all the trades on SENSEX constituents in the last 30 minutes of trading session. The use of Index Closure Algorithm prevents any intentional manipulation of the closing index value.
the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. Instead of using a company's outstanding shares it uses its float. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions. At regular intervals. are used by the trading system to calculate SENSEX on a continuous basis. The notation 1978-79=100 often indicates this. therefore. During market hours.1 SENSEX Calculation Methodology SENSEX is calculated using the "Free-float Market Capitalization" methodology. the index was calculated based on the ‘full market capitalization’ method. wherein. 2003. The free-float method. The calculation of SENSEX involves dividing the free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The index is calculated based on a free float capitalization method. replacement of scrips etc. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization. Navnirman Institute of Management 31 . The base period of SENSEX is 1978-79 and the base value is 100 index points. a variation of the market cap method. or shares that are readily available for trading. The Divisor is the only link to the original base period value of the SENSEX. does not include restricted stocks. prices of the index scrips. at which latest trades are executed. the free float market capitalization is regarded as the industry best practice. Globally. However this was shifted to the free float method with effect from September 1. government and strategic investors. the Bombay Stock Exchange (BSE) authorities review and modify its composition to be sure it reflects current market conditions. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. Initially. such as those held by promoters.Impact of Crude Oil Prices on Sensex 2.
which is the major benchmark throughout Europe and Africa and which is also excellent though of lower quality than WTI. This Market capitalization is multiplied by a free float factor to determine the free float market capitalization. the level of index at any point of time reflects the free float market value of 30 component stocks relative to a base period. OPEC (or Organization of Petroleum Exporting Countries) Basket Navnirman Institute of Management 32 . The index has increased by over ten times from June 1990 to the present. etc. 2. It keeps the index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions. The Market Capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. the long-run rate of return on the BSE Sensex works out to be 18.2 Calculation of Crude Oil Price Determining the price of gasoline and crude oil is a complex matter that takes into consideration several factors such as the oil grade.Impact of Crude Oil Prices on Sensex As per free float capitalization methodology. replacement of scrips. the location. Pricing markers or reference markers currently are the West Texas Intermediate (WTI) crude oil. the supply and demand. which is superb quality crude oil that makes for excellent gasoline. source. which translates to roughly 9% per annum after compensating for inflation. potential major crises in oil-producing countries (higher threat of which could shoot up worldwide oil prices) and a lot of other global and national benchmarks. The Calculation of Sensex involves dividing the free float market capitalization of 30 companies in the index by a number called Index divisor.6% per annum. destination. Brent Blend. The world oil price is the value of all the oil imported into the United States. Free float factor is also referred as adjustment factor. The Divisor is the only link to original base period value of the Sensex. Free float factor represent the percentage of shares that are readily available for trading. Using information from April 1979 onwards.
prices per barrel shot down to $16 as there was a negative downturn for demand. These pricing markers are the ones to which other crude oil are priced against. Futures markets refer to how traders would agree upon a future price of a commodity. These markets. this trading in itself could also be a determining factor on oil’s value. owing to high sulphur content.75.3 Meaning and Calculation of Correlation Definition: Correlation is a statistical measurement of the relationship between two variables. as the world everywhere experiences recession (which means lower demands for oil) – in 2008 oil prices went down from $150 to $40 a barrel in a space of only 5 months – oil exporting countries such as Russia were the some of the countries that showed major economic downfall. etc. have experts negotiating for the prices of oil based on transactions and futures markets. The market price of oil is a major determining factor in a country’s economy. a country using WTI as pricing marker would refer to other oil prices as WTI minus $0. such as the New York Mercantile Exchange (NYMEX). the economy is also a factor that determines oil prices. To illustrate. thereby making it least useful for making gasoline. which derive most of their economic income from oil exports. 2. A zero correlation indicates that there is no relationship Navnirman Institute of Management 33 . The commodities futures work like this: buyers and sellers would agree upon a selling price to be honored at a specific date. Oil is marketed in commodities markets.Impact of Crude Oil Prices on Sensex Price. Possible correlations range from +1 to –1. For example. based on market trends standards. supply and demand. Dubai and Saudi Arabia – they are typically priced the lowest for their quality of crude oil is lowest. For example. Though this trading is usually based upon the external factors impacting the value of oil. low oil and fuel prices would mean a weaker economy. Conversely. in January 1999 which was around the time of the Asian financial crisis. which comes from countries such as Mexico. It can get very complicated but you can read more about this process at the Commodities Futures Trading Commission website. For major oil-producing companies.
Navnirman Institute of Management 34 . After squaring r.7 squared = . While correlation coefficients are normally reported as r = (a value between -1 and +1). Sales of personal computers and athletic shoes have both risen strongly in the last several years and there is a high correlation between them.7 means 49% of the variance is related (. A correlation of –1 indicates a perfect negative correlation. If r is positive. A correlation report can also show a second result of each test . ignore the decimal point. the other goes down. If r is close to 0. 25).49). but you cannot assume that buying computers causes people to buy athletic shoes (or vice versa). The correlation is one of the most common and most useful statistics. the other gets smaller (often called an "inverse" correlation). it means that as one variable gets larger the other gets larger. A key thing to remember when working with correlations is never to assume a correlation means that a change in one variable causes a change in another. In this case. squaring them makes then easier to understand. it means there is no relationship between the variables. The square of the coefficient (or r square) is equal to the percent of the variation in one variable that is related to the variation in the other. An r-value of . A correlation is a single number that describes the degree of relationship between two variables. meaning that as one variable goes up.statistical significance.Impact of Crude Oil Prices on Sensex between the variables. the significance level will tell you how likely it is that the correlations reported may be due to chance in the form of random sampling error. If you are working with small sample sizes. choose a report format that includes the significance level. A correlation of +1 indicates a perfect positive correlation. meaning that both variables move in the same direction together. If r is negative it means that as one gets larger.5 squared =. This format also reports the sample size.5 means 25% of the variation is related (. An r of .
if it's positive.0 and +1. If the correlation is negative. Through the magic of mathematics it turns out that r will always be between -1.0.Impact of Crude Oil Prices on Sensex The formula for the correlation is: We use the symbol r to stand for the correlation. we have a negative relationship. the relationship is positive Navnirman Institute of Management 35 .
In this Crude Oil Price is cause and Sensex Value is effect. Because in this we study cause and effect relationship between Crude Oil Price and Sensex Value. The data is taken from: Dalal Street Books. 3.1 Objective of the Study: (1) Primary Objective: . (2) Secondary Objective: . 3.Monthly Sensex Value Navnirman Institute of Management 36 . Magazine.To study the relation between Crude Oil Prices and Sensex Value.2 Types of Research Design: In this project.4 Sample Size: 3-year data is collected as I.3 Collection Of Data: There are two types of data collection method: (1) Primary Data Collection Method. 3. Causal Research Design is used.Impact of Crude Oil Prices on Sensex 3. Journal. Monthly Crude Oil Price II. (2) Secondary Data Collection Method. Website.To analysis the impact of Crude oil on Sensex. For research study SECONDARY DATA Collection method is used.
3.5 Limitation of the Study: As we study about only 3 years so only on basis of this 3years data we cannot generalize about the whole.Impact of Crude Oil Prices on Sensex 3. Sensex does not have only impact of Crude Oil.6 Scope of the Study: Study can also be done on impact of Crude Oil on nifty. Time is limited. Navnirman Institute of Management 37 . Study of more than 3 years can also be done.
05 170.34 101.461.06 9.60 17.71 17.25 175.872.92 12.25 77.72 9.647.08 138.31 Correlation Navnirman Institute of Management .1 204.52 108.06 136.31 16.63 144.092.544.66 215.28 122.99 19.99 15.24 230.75 14.938.415.57 13.19 20.788.363.71 Sensex Valve 14.34 191.090.291.51 15.44 17.10 13.46 14.12 131.60 14.318.84 171.550.Impact of Crude Oil Prices on Sensex • Comparison between the Crude Oil Prices and Sensex Value Month Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 38 Crude Oil Price 100.52 247 249.355.05 153.38 168.650.09 13.837.52 128.08 113.37 14.53 12.286.287.644.10 19.564.85 122.3 187.99 17.72 15.072.860.578.648.43 9.
25 14.891.28 16.896.403.55 109.494144694 Navnirman Institute of Management 39 .84 15.24 8.926.424.58 78.83 87.69 128.64 17.47 139.708.Impact of Crude Oil Prices on Sensex Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 82.82 140.86 9.666.81 0.28 129.22 17.64 134.464.21 145.99 121.493.89 94.126.625.84 15.61 9.31 15.670.50 11.25 14.
As increase in Crude oil prices there is also increase in sensex value as you can see in the chart. As increase in Crude oil prices there is decrease in sensex value as you can see in the chart. In 2008 there is crude oil price is down and also sensex value down in this year.Impact of Crude Oil Prices on Sensex Interpretation: The table and line chart shows the monthly crude oil prices with the Sensex Value. This happen due to Global Recession. Correlation value is approx 0. The table and line chart shows the monthly in crude oil prices with the Sensex Value.49 that means it is positive and direct relationship. If the crude oil prices increase than sensex value also increase and the crude oil prices decrease than sensex value also decrease. Navnirman Institute of Management 40 .The table and line chart shows the monthly crude oil prices with the Sensex Value.
In 2008 there is Crude oil prices down in mostly every month and sensex value also down in this year. political issues. As increase in Crude oil prices there is also increase in sensex value as per chart. There are many variables like inflation.Impact of Crude Oil Prices on Sensex Conclusion Relationship between crude oil and Sensex. This happen due to Global Recession. When the price of this important element increases it will push up the prices and thereby inflation. It is easy to understand that crude oil is directly link with inflations and crude oil but relationship between crude oil and Sensex is not so easy. FII FDI. We can’t conclude that the crude oil price is the only variable which impacts the stock market. There will be great combinations of crude oil and stock market since major world economy are base on crude oil and US dollars. Navnirman Institute of Management 41 . Remember other than service sectors all most all the manufacturing sector is directly associated with the price of the crude. if we take current example last 40 days crude oil has come down approximately 22% and Sensex has shoot up around 23%. Excessive inflation is of no good sign to economy and hence it slows down. As the world everywhere experiences recession (which means lower demands for oil) – in 2008 oil prices went down from $150 to $40 a barrel in a space of only 5 months – oil exporting countries such as Russia were the some of the countries that showed major economic downfall. government monetary policies etc that are also Influence the stock market.
html http://www.uk/crude_oil/crude_oil_and_global_warming.uk/crude_oil/global_crude_oil_discoveries.net/kb/statcorr.Impact of Crude Oil Prices on Sensex Bibliography • • • • • • • • • • • • • http://psychology.com/commodity/crudeoil.com/world-markets/bse-sensex.org/wiki/BSE_SENSEX http://www.co.co.liveoilprices.liveoilprices.ncdex.liveoilprices.html http://www.com/correlation.com/crude oil price.uk/crude_oil/world_crude_oil_reserves.co.html http://www.uk/crude_oil/the_history_of_crude_oil.about.com/od/cindex/g/def_correlation.uk/oil_trading/how_crude_oil_is_bought_and_sold.liveoilprices.surveysystem.co.socialresearchmethods.liveoilprices.html http://www.html http://www.html http://en.crnindia.uk/crude_oil/list_of_main_oil_producing_countries .html http://www.htm http://www.mysmp.html http://www. html Navnirman Institute of Management 42 .php http://www.liveoilprices.co.co.wikipedia.htm http://www.
99 19.72 9.28 Sensex Valve 14.52 108.31 16.644.58 78.44 17.34 191.99 15.06 136.578.564.550.99 17.10 13.75 14.05 153.25 Correlation Navnirman Institute of Management 43 .52 247 249.25 14.38 168.08 113.34 101.09 13.08 138.072.57 13.24 230.648.55 109.090.647.46 14.60 17.708.06 9.650.363.89 94.872.3 187.71 17.50 11.544.837.24 8.287.12 131.53 12.424.403.05 170.52 128.860.788.63 144.286.60 14.25 77.891.92 12.10 19.938.461.1 204.318.Impact of Crude Oil Prices on Sensex Crude Oil Prices and Sensex Value Month Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Crude Oil Price 100.83 87.37 14.355.31 9.85 122.71 82.092.66 215.19 20.415.28 122.291.84 171.25 175.72 15.61 9.51 15.43 9.625.
31 15.69 128.81 0.21 145.670.464.493.494144694 Navnirman Institute of Management 44 .84 15.28 16.84 15.22 17.896.82 140.126.47 139.64 17.86 14.666.64 134.926.Impact of Crude Oil Prices on Sensex Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 129.99 121.
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