How Crude Oil Prices Affect Your Portfolio

A common man gets to know a hike in the crude oil prices when the fuel prices increase. Whereas an investor notices it through stock prices, sector performance, or investment portfolio returns. 

Especially for a country like India, which imports around 87% of its crude oil consumption, fluctuations in crude oil prices can ripple through its economy and gradually enter the stock portfolio. How? A sudden price hike or a sudden fall affects the capital flows between sectors, thus impacting the portfolio stock performance over time.

This blog can help investors understand how crude oil prices can affect stock market and assist them in making informed decisions carefully.

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Factors That Affect Crude Oil Prices

The crude oil prices are mostly influenced by supply and demand:

• Organisation of Petroleum Exporting Countries (OPEC) + nations hold considerable control over the supply and price of crude oil. 
• Geopolitical events such as wars can disrupt the supply chains, leading to an increase in oil prices.
• The economic growth in countries like India can affect the demand and consumption of crude oil, which has a direct relationship with the fluctuations in prices.

How do Crude Oil Prices Enter Your Investment Portfolio?

Crude oil is an important commodity that acts as a foundational input for an economy. Different sectors such as transportation, logistics, manufacturing, and chemical aviation, heavily depend on crude oil or crude oil products. So, whenever there is a fall or rise in crude oil prices, the impact can move beyond petrol pumps to your portfolio stocks. 

• High inflation and interest rates: An increase in the price of crude oil can result in an increase in the transportation, logistics, and production costs. In response, the central banks can enforce tighter regulations, leading to high inflation and interest rates, which might impact the equity markets.
• Uneven impact between sectors: Higher prices can benefit energy-based companies and oil producers. Whereas for automotive companies, it can cause a reduction in ICE (internal combustion engine) vehicle demands, leading to a decrease in sales. This uneven effect can hit stock market sectors differently.
• A disturbance in the currency and trade balance: An increase in the cost of imports can widen the trade deficit, leading to currency weakening. This can result negatively in company profits and investor confidence.
• Fuel taxes: Whenever there is a sharp rise in the crude oil price, the government modifies fuel taxes to handle inflation or protect its revenue. To address this, the government can cut excise duties or, at times, raise them to strengthen the collection. For example, the government increased the excise duty on petrol and tax by ₹2 per litre in April, 2025. Such modifications in the taxes can influence the stock performance, high fuel tax can compress the margin for the fuel companies, while a tax cut can improve demand, both ways impacting the investor’s stock profile.

Impact of the Crude Oil Prices on Portfolio Stocks

It does not matter whether you invest in oil and energy stocks or not; the impact of the changes in the crude oil prices can easily slip into your investment portfolios:

• A decrease in share price: In the case of high oil prices, the fuel costs can cut into the margins of the business, like chemicals and transportation, leading to a decrease in their share prices. In contrast, the cheaper fuel price can lower the operating costs, resulting in improved profits, and support high stock prices.
• Widened current account deficit (CAD): With every increase in the crude oil price, there is an increase in the current account deficit. A larger deficit implies more foreign currency moving out of the country. This directly puts pressure on the rupee. Because of a weaker rupee, the import becomes more expensive, dragging down share values.
• Impact on investors’ sentiments: As the crude oil price hike impacts the economy and imports, it rings the panic button in the stock market investors. The crises can encourage investors to pull back their money or stop making investments in the market, triggering a market crash. For example, when the Russia-Ukraine war intensified, the global crude oil price increased by $10 a barrel. This resulted in the Sensex falling to 1736 points and the Nifty 50 index dropping 451 points.

How Can Stock Investors Deal With Crude Oil Price Fluctuations?

Dealing with crude oil price fluctuations can be challenging, as the factors affecting it are not actually in your control. But here are some ways that can help you deal with it:

• Do not make frequent investment decisions: Crude oil prices are influenced by geopolitical events, supply and demand disruptions, or global events, which are mostly unpredictable. If you make frequent investment decisions or pull out money from your invested stocks, it can lead to emotional investing or unnecessary losses.
• Invest diversely: Your investment portfolio should be scattered across diverse sectors. A well-diversified portfolio has some sectors that benefit from the oil price surge, while others may suffer losses due to the hike. 
• Make limited investment in oil-sensitive stocks: If your portfolio stocks are most inclined towards oil-based companies, then there are heavy chances that you may frequently have to feel the brunt of the sudden crude oil price changes. So, avoid concentrating too much on investing sectors such as aviation, paints, logistics, transportation, etc.
• Focus on long-term financial goals: While a sudden price hike can help investors achieve significant benefits, remember that the oil market is unpredictable. So, make investments keeping in mind your long-term goals and your capability to tolerate risks. 

Conclusion

The crude oil prices can affect inflation and interest rates, currency, and ultimately, market behaviour. In terms of stocks, it does not affect all portfolio stocks in the same way. While some sectors gain sudden benefits, others may face terrible losses. 

So, for investors, understanding how crude oil prices affect stock market, especially your investments, is critical. It allows them to know market volatility, make diverse investment decisions, and stay focused on long-term investment goals, rather than short-term benefits.