The Relationship Between Oil Prices, Exchange Rates And Emerging Stock Market Prices

1151 Words May 1st, 2016 5 Pages
Over the past decade, there have been numerous periods of high volatility in oil prices. In July 2014 oil was priced on the North Sea Brent at over $111/barrel, followed by the most recent oil price crash which lowered the Brent in early 2016 to under $30/barrel.

There is a growing body of evidence to suggest that the days of oil commodity prices being driven purely by forces of supply and demand are over.

Figure 0

Since the early 2000s, the sharp increase in oil price volatility has coincided with a more apparent link between exchange rates and other assets. The 2008 Financial Crisis demonstrated how interwoven the global economy has become. This does not only apply to equity markets. As Figure 0 shows above, the crash coincided
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Figure 1

Figure 2

With these exponentially high levels of economic growth, the two countries have developed an appetite for energy to match.

As can be seen in Figures 3 and 4, there is a clearly observable linear trend between GDP growth and energy consumption. According to the U.S. EIA’s 2013 and 2014 data . China is the world’s largest energy consumer and producer. It has also recently become the world’s second largest crude oil consumer. For China, production of crude oil accounts for 9% of total energy production. China also produces 85.6% of the energy they consume – they gap between these figures is due to the fact that China produces most of it’s energy from Coal and Natural Gas.

Figure 3

India on the other hand is the worlds third largest crude oil consumer and seventh largest energy producer fourth largest energy consumer. Indian production of crude oil accounts for 10.8% of total energy production. India also produces 58.6% of the energy they consume.

Figure 4

Despite these relatively high levels of energy self-sufficiency, both India and China still heavily rely on large quantities of oil and petroleum product imports. See Table 1 below for imported tonnage for the period of this study.

Table 1

Figure 5

According to the World Bank, Oil and Petroleum products are the largest import categories for Both India and China. See Table 2 and 3 summary import-export figures for the period of this study .

Table 2

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