05.10.2004
Why Do Oil Prices Affect Stock Prices?

One of the big concerns being cited by investors this week is the rise in oil prices. In fact, according to The Wall Street Journal, the price of oil hit its highest level in over 13 years.

The most likely place to see or hear about this is in the price of gas. Across the country, the price of gas has gone up a lot lately. Why would higher gas prices cause stock prices to go down?

On an individual level, if people have to spend more of their money on gas because prices have gone up, they have less to spend on other products. If they spend less on other products, companies make less money and this could lead to stock prices going down.

The price of gas and oil also has an effect on the overall economy. This is because gas and oil is used by most product companies in many different parts of their business. Let's look at the company, Extreme Bicycle, for example. Here are some of the ways that they use gas and oil:

1. They use natural gas to heat their factories and offices.
2. They use petroleum-based plastics in their bikes and helmets.
3. They use gas for their delivery trucks.
4. They use gas for their salespeople and executives to drive and fly around the country selling their bicycles to stores.

If Extreme Bicycle has to pay more money for all the gas and oil they use, but they keep the price of their bikes the same, then they will make less profit. And if they make less money, some stockholders will want to sell their stock. And if more stockholders want to sell than want to buy, then the price of Extreme Bicycle's stock will go down.

Remember, when the economy is doing well and companies are making more money, stock prices usually go up. When the economy is doing poorly and companies are making less money, the stock market usually goes down.