Oil Price Microeconomics

CHAPTER 01

INTRODUCTION

1.1 Introduction

This study shows you the consequences of oil prices on Stock exchange. The industries prices totally based on the oil prices. Oil price have direct and indirect impact on the economy of any develop and under developed country. The rising oil prices are the major concern for all the developing economies and Pakistan is facing it too. The increase in oil price has further effect the daily consumption pattern of households’ badly. This study interpret that changes in Real crude oil price has positive impact on the real GDP and many others factors. a lower government spending, a higher real stock price and a lower interest rate would raise real output for Pakistan. Oil cost is aspect for determining the

In terms of microeconomics, it is believed that higher oil prices might affect the domestic economy in terms of lower consumer welfare at the cost of higher producer’s welfare. It is especially caused by rise in production cost of products and services, and the oil price influence on inflation and consumer confidence. It seems logical to assume that Prices of Oil and performance of stock market is negatively correlated. High transportation and high production cost are because overpriced fuels. Usually stock market becomes more offensive due to higher interest rate that has to increase by policy maker. The value of stocks slope down due to the anticipation that interest rate to be higher and increase in oil costs decrease the cash flows of companies so the threat to stock market is the oil price fluctuate. So, oil price change besides affecting production and utilization like other merchandise can also be source of change in behavior of depositors and stock prices. Cost and high heating cost which reduces corporate earnings. Higher fuel prices can also stir up inflation. But booming economy can also be associated with high price crude. Higher fuel prices can show stronger business position and can increase demand for

Here crude oil price means share those companies which deal in crude oil. What happen actually when the prices of crude oil increase, the cost of production increase and it impact on consumer goods as increases in prices, the indirect impact of increasing prices negatively effect on the economy.suddden increases in price of consumer goods slow down the purchasing power of a an individual directly effect on consumption which has negative impact

Pakistan depends on import of oil for running its economic machinery; the main source of industrial fuel is based on crude oil. The oil as input factor for cost of production, react directly to the prices of commodity. Especially while the prices of oil are being increased, so for it cause the reason of inflation and instability of the economy.

1.4 Research Question

• What is impact of Oil price on KSE-100 index?

• What is relation of Oil price with KSE-100 index?

1.5 Research Objectives

To identify the influence factor of Oil price on KSE-100 index as oil prices are set by the cost of oil is mainly dictated by supply and demand. In the past, the supply was primarily determined by the Organization of Petroleum Exporting Countries (OPEC), which meets every two years to set production quotas.

1.6 Hypothesis study:

H0: Oil Prices has no significantimpact on K.S.E-100 Index. H1: Oil Price has significant