The Ukraine-Russia conflict has led to rumor mills predicting instances like World War 3, Regional Conflict(NATO-Russia), Rise of Crude Oil Beyond US $200, etc.
Some of the signs visible during the outbreak of the war like a rise in Crude Oil Prices, an Increase in the cost of Coal, an Increase in the cost of Foodgrains, etc. were extrapolated towards the fulfillment of the prophecy of the World Wide Suffering.
As seen from the 6-month chart, the Crude Oil Prices show an upward trend. But surprisingly, even prior to the outbreak of the war, Crude Oil was trading above US $80/barrel.
So, blaming everything on the War will not be wise.
There are multiple reasons for the oil to boil currently:
- Lack of incentives for oil explorers to find new sources as the world is migrating towards Clean Energy like Solar, Wind, Electric, and Green Hydrogen/Ammonia
- Voluntary Capping of Output by OPEC+ to allow for countries to make up for the money lost during the pandemic wave – 1 to 3
- Restoration of demand towards pre-covid levels especially in countries like India
- Sanctions on Russian Crude Oil without allowing/getting Crude Oil from Venezuela, Iran into the market
- Attacks on the oil infrastructure through physical or cyber attacks
Having put across this picture, let us try to understand a few things
- The stock market is a collection of companies that are not totally dependent on Crude Oil or commodities from the Eurasia Belt example. Banking
- Many Companies like Cement, Auto ancillaries, etc. plan their inventory in advance in order to isolate themselves from rude shocks
- Currency hedging and other mechanisms are used by export-driven industries to keep their margins intact
- With the tightening of the Federal Reserve’s interest rates, well managed (less leveraged) companies will be better poised to raise money via equity/debt and run their operations
This holds true for any company in any part of the world. Accordingly, stay invested in the Stock Market given that the inflation rates are nearing ~10%. No other asset class is poised to beat the cycle and make money for the investor.
Hope this helps