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1.Is crude oil complicating the economic & stock market situation?

It is very common to correlate the increase or decrease in the prices of major factors, such as crude oil $WTI Crude Oil - main 2311(CLmain)$ , and the change of major stock market indexes.

Conventional thinking believes that an increase in oil prices will raise the costs for most businesses and daily life and force people to spend more money on fuel, thus resulting a reduction of the corporate earnings from other businesses. The opposite could be true when oil prices fall.

Crude oil prices do have an impact on the world economy, but it goes two ways due to the diversity of industries.

• High oil prices can stimulate job creation and more investment because they become economically available for the oil or energy companies to exploit higher-cost shale oil deposits. However, high oil prices are also harmful to businesses and consumers with increasing transportation and manufacturing costs.

• On the opposite, low oil prices hit the unconventional oil exploitation, but benefits manufacturing industry and other businesses where oil cost is the major concern.

2.The correlation between oil price and stock market

Regarding the stock market, some economists found that the correlation between the stock market and oil prices is not that pronounced. Several sound explanations about this have been given.

• The first and most obvious reason is that other price factors in the economy, including wages, interest rates, industrial materials, chemical engineering products, and computer technology are able to counteract the changes in crude oil costs.

• Another possibility is that businesses and manufacturing industry have become more and more sophisticated at foreseeing futures markets with more possibility to anticipate changes in factor prices. A manufacturer could switch production processes to compensate for increased fuel costs. Several economists suggest that general stock prices usually rise on the expectation of an increase in the quantity of money, which occurs independently of crude oil prices.

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3. Oil future price reasons

A distinction needs to be make between the primary factor of crude oil prices and the changes in corporate stock prices.

Oil prices are dependent on the supply and demand of the products which are based on petroleum and the derivatives. During an economic growth, prices might rise in agreement with an increased consumption. They both might also fall down due to an increased production.

• From the demand side: OPEC stated in its monthly crude oil market report on the 12th that global oil demand will increase by 2.44 million barrels per day in 2023, reaching 102.1 million barrels per day; in 2024, it will increase by 2.25 million barrels per day, reaching 104.3 million barrels per day. /day.

"Sustained global economic growth is expected to drive higher oil demand, especially given the recovery in tourism, air travel and driving demand." OPEC said.

• From the supply side: OPEC's latest monthly report released on the 12th estimated that global oil supply will be short of 30 million barrels per day in the fourth quarter of 2023. Analysts pointed out that countries such as Saudi Arabia will maintain production cuts until the end of this year. Russia closely followed Saudi Arabia and stated that it would reduce daily exports by 500,000 barrels in August. On September 5, Russia and Saudi Arabia once again disturbed the market and announced that they would extend their production reduction plan until the end of 2023. The two countries are the largest producers in the OPEC+ group, with most other members of the group also cutting production. Saudi production cuts and record demand have pushed oil prices up 26% in the quarter.

OANDA analyst Craig Erla said reduced supply and an improving economic outlook have made oil investors more optimistic. However, he also pointed to signs that momentum is waning after oil prices continued to rise.

As of press time, crude oil futures $WTI Crude Oil - main 2311(CLmain)$ had risen for four consecutive months and fell 1.78% on Wednesday after breaking through $90.

Stock prices increase and decreased in accord with future corporate financial reports, intrinsic values, risk tolerances of investors and a large number of other economic factors. Even though stock prices are commonly aggregated and lumped together, it is very possible that oil price affects certain fields much more significantly than it affects others.

4.Oil & Inflation

On a larger scale, the rise in oil prices will affect inflation expectations, which will in turn affect the Federal Reserve's interest rate decision and affect the liquidity of the entire market.

The surge in prices to the highest since last year may make it more difficult for the Fed to fight inflation. Powell said last month that he would not rule out another rate hike if the economy did not cool enough to keep inflation lower.

If oil prices continue to rise and inflation cannot be controlled, the Federal Reserve will raise interest rates, U.S. bond yields and the U.S. dollar will rise, affecting the liquidity of the stock market and so on.