Birds of a Feather Flock Together – Oil Stocks and Oil Prices

Here’s a look at how oil prices affect companies in the oil industry’s value chain

Crude oil prices seem to be the single most important determinant of oil companies’ performance. For this article, we ran some tests to find the correlation between Brent Crude prices and a few general performance indicators for oil companies. We found that oil prices do indeed affect oil companies’ performance to a great degree, but the extent to which they do so depends greatly on the companies’ positioning in the industry’s value chain.

For future reference, here’s a brief look at the how the industry is broadly categorized:

• Exploration and Production (E&P) oil companies, which explore oil reserves and produce crude oil.

• Refining and Marketing (R&M) companies, which refine crude oil and market it to end consumers.

• Integrated Oil Companies (IOCs), which are involved in everything from the exploration and extraction activities, to transportation and marketing.

Our results indicate that not only do crude oil prices act as leading performance indicators, they also determine whether it is feasible for the oil industry to explore, extract, refine and sell crude oil and other petroleum products. Read more