Oil Prices http://www.wikinvest.

com/concept/Oil_Prices

Lulu Cheng edited Warner Music Group (WMG) 1 minute ago (more)

Concept

Oil Prices
Neutral

This article describes a concept which could impact a variety of companies and industries. The article
lists companies that could benefit or be harmed by the trend. To see what companies and articles
reference this concept page, click here.

Few inputs impact the U.S. economy as much as the Bulls edit Top Contributors
price of oil. Oil powers the cars, trucks, and airplanes
1. Worldwide oil production has not substantially Avinash
that transport people and products for the entire increased, even as prices have risen sharply Gandhi
economy. As oil prices rise, costs go up for over the past few years.... read more
Sr.
transportation companies such as airlines and freight 2. Worldwide increases in demand are being
Director
delivery companies, squeezing their profit margins. driven by developing economies, especially
India and China. They are not so... read more Joseph
Downstream of these companies, customers who rely
3. Supply is waning in traditional fields and major Citarrella
on them to get products to market are similarly
swing producers such as Saudi Arabia will not
impacted by higher prices. In contrast, most companies Sr.
be able to fill demand... read more
in the energy business benefit from higher oil prices, Director
either from higher revenues for oil, or because of Bears edit
Related Articles
increased demand for substitute energy sources such 1. The expansion in global credit has fueled the
as ethanol and clean energy. Car companies with fuel recent surge in global demand for all asset Exxon Mobil
classes as much as (or perhaps more than) (XOM)
conservation technology -- such as hybrid engines -- any other fundamental driver of demand.
can expect sales to go up as consumers feel the pinch Renewable
2. The expansion in the prices of commodities
of higher prices at the pump, while those who rely on Energy
priced in U.S. Dollars has been as much a
sales of SUVs may find their business models function of expanding global credit... read more First Solar
challenged. 3. The uncertainty in the global credit markets, (FSLR)
coupled with the clear realization that the U.S. Biofuels
housing market is set for... read more
SunPower
Contents Send the authors a comment or suggestion (SPWR)
1 Oil Trading Price Updates
2 Why Oil Prices Rise or Fall
3 Positive Exposure
4 Negative exposure
5 Ways To Invest in Oil
Submit

Be the first to make a suggestion

See All Suggestions
Oil Trading Price Updates [edit ]

11/21/07 - $99.29 for U.S. light, sweet crude

11/29/07 - $92.50
11/30/07 - $88.50 - drop occurred at announcement of a ruptured Enbridge pipeline being quickly fixed
12/05/07 - $89.07 - rise connected to OPEC's announcement that they would, contrary to rumors, hold output steady
12/12/07 - $94.02 - $4.37 spike at announcement of central banks increasing world money supply
12/20/07 - $91.36

1 of 5 3/12/2008 5:58 PM
Oil Prices http://www.wikinvest.com/concept/Oil_Prices

12/28/07 - $97.25 - Prices spike at assassination of former Pakistani Prime Minister, Benazir Bhutto.
01/02/08 - $100.09 - Crude trading finally breaks the magic barrier at the possibility of violence-induced Nigerian
production cuts.
02/20/08 - $100.74 - Oil prices finally break the $100 mark again, and crude closes above $100/barrel for the first time,
with theories as to why ranging from the Venezuelan supply cut to Exxon (unlikely) to political unrest in Nigeria (more
likely) to a fire at an Alon USA Energy refinery in Texas (most likely).
03/05/08 - $104.52 - Oil prices spike after Bush's demand for more oil from OPEC was denied, with the cartel blaming
speculation and "mismanagement" for the U.S. economy's problems.
03/11/08 - $109 - Oil prices continue to rise.

Why Oil Prices Rise or Fall [edit ]

Generally speaking, there are four reasons for oil prices to rise:

1. Increases in Demand: Demand for oil, as well as demand for energy in general, is closely tied to the global economic
cycle. In periods of economic growth, new factories consume energy, shipping companies transport more goods and
consumers purchase more automobiles and take more plane trips. This demand for energy -- or even news
suggesting the economy is heating up -- pushes up energy prices. For example, a recent announcement that five
major central banks will pump money into the world economy to help mitigate the current credit squeeze caused the
price of oil to jump over $4 at speculation that energy demand would increase. Conversely, during periods of
economic contraction such as recessions, demand for oil and other types of energy tends to fall, leading to reductions
in price.
2. Reduced Supply: Cartels such as OPEC periodically decide to pump less oil out of the ground in an effort to raise
prices and increase revenues for countries that export oil. Additionally, oil supply can be impacted by terrorist attacks
or other disruptions to the transportation and refining networks -- including pipelines, shipping facilities, and refineries
-- that bring oil from where it is extracted to the consumer. Additionally, Strong hurricane seasons can damage oil
platforms in the gulf, reducing the amount of oil supplied to the U.S. Supply can also be artificially reduced or
increased by government taxes or subsidies on oil production. The recently passed U.S. Energy Bill, for example, was
expected to cut tax breaks for big oil companies, thereby sending oil prices through the roof; because of the industry's
lobbying efforts, however, the bill did not contain the taxes that were expected, so oil prices stayed relatively stable.
3. Currency Fluctuations: The United States imports much of its oil, and that oil is purchased abroad in U.S. dollars.
The changing value of the dollar in comparison to other currencies impacts the price paid by end users. A strong dollar
means a lower price, in dollars, and a weak dollar means more dollars must be spent to purchase the same amount of
oil. Currency fluctuations are complex, for a more complete discussion see currency fluctuations, but the value of a
currency is impacted by the relative value of goods imported and exported (known as the trade balance), interest
rates, and the size of the national debt, among others.
4. Speculation: Some analysts believe that oil prices have been spiking recently because of increased speculation
about the future value of oil. Specifically, these analysts claim that the belief that oil supply is lower than it is and belief
that future oil supply will be just as low has led traders to inflate oil prices in the present. While much of the data
shows that production has been slowing, it's possible that speculation could account for some of the present price
spikes, and explain why oil has not yet gone over $100 a barrel, as speculation is a psychological phenomenon, and
could be affected by some psychological fear of raising the price above a certain point.

2 of 5 3/12/2008 5:58 PM
Oil Prices http://www.wikinvest.com/concept/Oil_Prices

World Oil Production

Oil Price per Barrel since 1997

Positive Exposure [edit ]

Several categories of companies stand to gain from rising oil prices:

Alternative energy companies such as SunPower (SPWR) and First Solar (FSLR) benefit from higher oil prices because
their products are more cost-effective when oil prices go up.

Companies with Energy-Conserving Technology such as Toyota Motor (TM) benefit from higher oil prices because high oil
prices lead consumers seek out ways to reduce the amount of gasoline they use.

Oil exploration and production companies prospect for oil, and then sell the rights to their discoveries or the crude they
produce to a larger company. These companies are particularly sensitive to the price of oil, as they commonly take
ownership of dilapitaded oil fields and apply advanced (and expensive) technology to squeeze more oil out of the ground.
At low oil prices, they cannot profitably extract any oil, but when oil prices rise these companies' valuations can skyrocket.
Companies with right to extract oil from Canadian oil sands are particularly sensitive to changes in the price of oil because
of the expense of producing oil in this fashion. Deepwater drilling contractors like Transocean (RIG) and Diamond
Offshore Drilling (DO) are also affected as the dayrates for their rigs correlate closely with oil prices.

Oil majors are the very largest, fully integrated oil companies. These companies explore for and produce crude oil and
natural gas; they transport it by pipeline and tanker; they refine crude oil into finished petroleum products; and they also
market crude oil, natural gas, and refined petroleum products to industrial users and retail consumers. As oil prices rise,
these companies' proven reserves increase in value; they can sell their product for more money on the open market and
stand to benefit from higher revenues. Major companies include companies such as ExxonMobil Corp. (XOM),
ChevronTexaco (CVX), ConocoPhillips (COP), Royal Dutch Shell (RDS'A) and British Petroleum PLC (BP)

Independent Oil and Gas producers are partially, but not fully integrated oil companies. For example, an independent oil
company might produce, transport, and refine but not market petroleum products to the end user. Or it may produce and
transport without refining. These companies include companies such as China Petroleum & Chemical Corp. (SNP), an
integrated oil company which also manufactures plastics and operates drive-thru McDonalds franchises in The People's
Republic of China, or CNOOC Ltd. (CEO), a company which explores for and extracts oil from the South China Sea. As
the price of oil goes up, these companies can sell oil at a higher price, increasing their revenues. Other independents
include Devon Energy, Anadarko Petroleum, Occidental Petroleum, Comstock Resources, Apache, Chesapeake Energy,
Cabot Oil & Gas, EnCana, and EOG Resources.

NOTE: Recent gains in oil prices have been offset by rising oil production costs stemming from higher labor and equipment
costs (and, possibly, increasing difficulty in discovery and exploration). Though oil prices have risen above $90/barrel,
earnings per barrel have not significantly changed, making the profitability of the current oil trend questionable.

Oil and Gas Refining & Marketing companies purchase crude oil, process it and re-sell it to the end-user. Companies
include Sunoco (SUN) and Valero Energy (VLO). These companies sometimes benefit from higher oil prices, depending
on whether the price they pay for oil from companies that extract it from the ground goes up as well. If rising oil prices are

3 of 5 3/12/2008 5:58 PM
Oil Prices http://www.wikinvest.com/concept/Oil_Prices

a result of limited refining capacity, these Oil and Gas Marketing companies will benefit from higher oil prices because
their prices will tend to stay the same even as their revenues increase. If higher oil prices are a factor of limited
production, however, these companies lose, as they must pay more for the crude needed for their refining processes,
causing margins to shrink.

Oil and Gas Equipment and Services companies sell technology, equipment, and expertise to companies prospecting for
oil. These companies benefit from higher oil prices because their most expensive technologies become cost-effective only
when oil prices are high. Major players include Schlumberger (SLB) and Halliburton (HAL), and Patterson-UTI Energy
(PTEN) . Smaller companies highly leveraged on oil include Parker Drilling Company (PKD)--the major players are often
diversified outside of oilfield services.

Oil and Gas Pipeline companies build supply pipelines and stand to gain from increased construction when oil prices are
high. They include Williams Companies (WMB) and Enbridge.

Negative exposure [edit ]

Rising oil prices pose challenges for many companies as well as US consumers, which is why rising oil prices are often seen
as damaging to the economy.

1. Rising oil prices increase costs for many companies. These costs may be difficult to pass on to customers, thereby
eroding profit margins.
2. Rising oil prices reduce consumer demand for products that consume a lot of oil.
3. Rising oil prices make travel more expensive

Shipping companies are harmed by higher oil prices because oil is necessary to operate the planes, trucks, and ships that
transport goods around the globe. These companies include brand-name trucking companies such as Federal Express
(FDX) and UPS as well as industry-focused companies such as TNT (TNT) and Con-Way Trucking (CNW) and
international shipping companies such as Teekay Shipping (TGP) and Frontline (FRO). Interestingly, LTL trucking
companies are relatively shielded from fluctuations in diesel fuel prices, as the industry generally passes on fuel price
surcharges to its customers like Wal-Mart Stores (WMT) .

Airlines such as Southwest Airlines (LUV) and Delta Air Lines (DAL) are harmed by rising oil prices as jet fuel accounts for
as much as 30% of the cost of running an airline. Because most airlines' profit margins are already fairly small, rising oil
prices can eliminate many airlines' profits.

Other vacation and travel alternatives, for example, cruise lines Royal Caribbean Cruises (RCL) and Carnival (CCL), are
at risk of decreased consumer discretionary spending as well higher fuel costs for their ships.

Chemical companies and plastic manufacturers such as Dow Chemical Company (DOW) , 3M Company (MMM), and
Goodyear Tire & Rubber Company (GT) are harmed by higher oil prices because petroleum is key ingredient in the
materials they produce. As the price of oil rises, plastics and chemicals become more expensive to produce.

Metal manufacturers such as US Steel (X) and Alcoa (AA) are hurt by rising oil prices because the process of
manufacturing aluminum and steel both require a lot of energy.

Retailers are harmed by rising oil prices because shipping companies will charge them higher prices, making it more
difficult for them to get their products to market. These companies include household names such as WalMart and Target.
Discount retailers, including Family Dollar Stores (FDO), Dollar Tree Stores (DLTR), Big Lots (BIG), and Dollar General
(DG) are also especially exposed as their consumers are low-income householders who are more sensitive to rising
energy prices.

Online Retailers such as Amazon.com (AMZN) and Overstock.com (OSTK) are harmed by rising oil prices because these
companies often subsidize the cost of shipping products to their customers. Rising costs of shipping make these subsidies

4 of 5 3/12/2008 5:58 PM
Oil Prices http://www.wikinvest.com/concept/Oil_Prices

more expensive.

Car companies heavily dependent on sales of SUVs for profits such as General Motors and Ford are harmed by rising oil
prices as consumers tend to reduce their purchases of these cars when oil prices are high.

Autopart retailers like AutoZone (AZO), Advance Auto Parts (AAP), and O'Reilly Automotive (ORLY), who depend on
heavy driving and automotive wear-and-tear, struggle when drivers conserve due to high oil prices and demand fewer
repairs.

Automotive retailers like AutoNation (AN) and CARMAX (KMX) depend on replacement demand for new cars due to
wear-and-tear.

Energy Concepts
Renewable Energy • Biofuels • Carbon Trading • Cellulosic ethanol • China's Water Scarcity • China's
Coal Power Pollution • Clean Coal • Coal Power • Corn Prices

Ways To Invest in Oil [edit ]

Stock investors can buy or short-sell oil-related ETFs. One of the most traded ETFs is USO. Also consider DCR, UCR, DUG
and OIL.

Categories: Concept Pages | Mature | Energy | Commodity Prices | Transportation | Green Issues

Worried about pump and Want to make Wikinvest Do you write software? Like Wikinvest?
dump? better? We are Spread the
We review We need your recruiting word —
changes help, the best Tell your
for stock spam contribute today engineers friends!
» read more » learn how » view jobs » spread the word

Wikinvest © 2006, 2007, 2008. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information
provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call
transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock
market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15
minutes for NASDAQ, 20 mins for NYSE and AMEX. See data providers for more details.

About | Jobs | Feedback | Help | Get involved

5 of 5 3/12/2008 5:58 PM