Stock Market News: Oil Prices and Stocks
For the second day in a row, oil prices have been dropping. Now they are below $120 a barrel, and many stocks on the market are beginning to take heart from the situation.
Why are oil prices dropping?
One of the big reasons that oil prices are dropping is to do with global demand. Demand for oil is slowing as prices cause inflation. Even in the United States, drivers have been cutting back in order to save money on transportation costs. In developing nations — nations that are expected to use increasing amounts of oil in the next few years, oil prices are preventing the commodity from being affordable. This is causing a drop in demand as well.
Oil prices and the stock market
For the stock market, falling oil prices are a good sign. Oil is necessary for many businesses, and in several sectors (airline stocks especially are seeing some gains) lower oil prices mean that profit margins are likely to increase, since the cost of energy is lower.
However, it is important to note that oil prices are volatile, and that they could spike upward again. Predictions that oil will drop to below $100 a barrel, now that it has started its slide, may be premature (though such a drop is certainly possible). Even if it doesn’t, the current drop is certain fueling a great deal of optimism. If oil price increases are arrested for a while, it might provide some breathing room to get the economy on the road to recovery.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
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