The sequence I follow in my head when I see news about rising crude oil prices
Rising crude oil prices news is something I have seen several times since I started investing.
At first, to be honest, I could only perceive it as “gasoline is going to get expensive” and nothing more.
However, after experiencing similar situations several times, I have become aware that rising crude oil prices are not just about gasoline costs, but that the impact spreads to household budgets, companies, prices, interest rates, and even stock prices.
I felt this again recently with the news related to “Wasa-Beef”. It is said that procuring heavy oil has become difficult, preventing factories from operating, and production has stopped.
I personally like “Wasa-Beef” as well, so I am looking forward to the resumption of production.
When we hear about the impact of crude oil or Middle Eastern affairs, we tend to think of energy and transportation, but in reality, it can also ripple out to food manufacturing and supply.
Seeing the impact reach even the supply of familiar snacks makes me feel that the issue of crude oil is not just a “distant market story,” but is connected close to our daily lives.
Of course, it does not always move in the same way every time.
However, just having a sequence to follow in my head when I see the news makes me feel less likely to panic.
This time, I will write about the flow I use to organize my thoughts and move into investment actions when I see news about rising crude oil prices.
First, separate facts from interpretations
The first thing I do is separate facts from interpretations.
For example,
Crude oil prices are rising
The situation in the Middle East is tense
There is talk of releasing strategic reserves
These are facts.
On the other hand,
Energy stocks tend to rise
Stocks with heavy fuel costs like aviation, logistics, and chemicals tend to fall
A recession might be coming
This part is an interpretation.
When watching the news, these two things are easy to get mixed up in my head.
I used to get them jumbled up too, and the moment I saw the news, I would tend to rush to a conclusion, saying “So, what should I buy?” right away.
However, if you just lay out the facts first, it becomes easier to think calmly.
Rising oil prices tend to start with household budgets and spread from there.
When I see news about rising oil prices, I first bring this flow to mind.
Rising oil prices → Household budgets → Companies → Prices → Interest rates → Market
It is a rough outline, but this is the order I use to organize my thoughts.
1. Household budgets
First, what is easy to understand is the rise in gasoline prices and electricity bills. The burden on things close to daily life tends to increase.
2. Companies
Next, the costs for companies that use fuel and raw materials increase.Aviation, logistics, chemicals, materials, food, etc.—even if the way they are affected differs, it tends to spread in the form of rising costs.
3. Prices
When companies pass on increased costs to prices, it then affects consumer prices. In other words, rising oil prices tend to spread their impact to both households and companies, and from there, it leads to discussions about prices.
4. Interest rates
When prices tend to rise, it becomes difficult for central banks to lower interest rates. In some cases, there is an awareness of moving toward raising interest rates to curb prices.
5. Market
When interest rates rise, it tends to be a headwind for the stock market. This is because the appeal of safe assets increases, corporate borrowing costs rise, and profits expected in the distant future tend to be viewed as lower at the present time. The tendency for growth stocks to be sold off when interest rates rise is largely due to this effect.
When I see news about rising oil prices, I generally follow this path once.
However, this flow does not all happen at once, and it often involves a time lag. If you keep this in mind, you will be less likely to panic.
Immediately after: Reactions in gasoline prices and energy, aviation, and logistics stocks are likely to appear
A few months later: Price hikes tend to spread to food and daily necessities
Six months to a year later: Weak consumer sentiment and economic slowdown due to rising interest rates become more apparent
When you think about 'which stage of the wave is arriving now,' the way you view the same news about rising crude oil prices changes a little.
Look at companies as 'the sellers,' 'the users,' and 'those who buy, process, and sell crude oil'
Next, what I think about is roughly dividing companies into three categories.
The sellers
These are the ones selling crude oil or energy itself. Rising prices tend to be a tailwind for them.
However, this is not simple either; the perspective differs slightly between those who extract resources and those who refine and sell them. Even if they are all 'oil-related,' I don't lump them all together.
The users
These are the ones using crude oil or fuel as a cost. Airlines, logistics companies, and chemical companies are easy examples to understand.
For them, rising crude oil prices tend to appear as a headwind to profits first. What is important is not the sales, but whether they can absorb the increased costs.
Those who buy, process, and sell crude oil
These are companies that purchase, process, and sell products. I feel this is the most 'seemingly simple but not simple' category.
Just because they handle products that have increased in price does not mean they automatically make a profit. Their procurement costs also rise, and demand may fall. It becomes important whether they can successfully pass the costs onto the selling price and properly retain profits.
I think that just by dividing them into these three, it becomes much easier to see.
Look at how profits move rather than sales
What I have become more conscious of than before with news about rising crude oil prices is looking at profits rather than sales.
For example, if they can raise prices, sales may not seem to collapse at first glance. But behind that,
raw material costs are rising
fuel costs are increasing
Demand is shifting to cheaper products
When this happens, profit margins tend to suffer.
I am also very conscious of this when looking at news about food and chemicals.
Even among companies that have raised prices,
companies whose customers are unlikely to leave even after a price hike
companies whose sales volume is likely to drop after a price hike
look quite different.
When I see news about rising raw material costs or price hikes, I care more about whether they can protect their profits even if they raise prices than whether this company can raise prices itself.
The difference lies in the ability to pass on costs and the difficulty of being replaced.
I think this is a perspective that can be used for various news, not just rising crude oil prices.
Companies that tend to look strong during times of high raw material and fuel costs generally have
the ability to easily pass on costs
difficulty being replaced by other companies' products
relatively high profit margins
I have the impression that they possess these qualities.
Conversely, companies that tend to struggle often have
a tendency to get caught in price competition
a tendency for customers to leave when prices are raised
a tendency to absorb rising raw material costs directly
as characteristics.
Whether it's food or chemicals, I feel like I always end up coming back to this.
Rather than trying to immediately guess "which company will go up due to rising crude oil prices," I find it easier to think calmly by looking at "how much of the increased costs the company can pass on to its profits".
Things I check at the end
When I see news about rising crude oil prices, I often check the following three things at the end.
1. Is this a temporary movement?
The perspective changes significantly depending on whether it is a temporary shock or something likely to drag on.
2. Which companies are likely to see increased costs?
Instead of just concluding that "it's generally bad," I look at which companies are particularly susceptible to the impact.
3. Is it likely to lead to changes in prices and interest rates?
If it reaches this point, it becomes more likely to affect how the entire market is viewed.
Rather than jumping to conclusions immediately after seeing the news, I try to check these three things first before considering my next investment move.
Summary
When I see news about rising crude oil prices, I tend to want to know immediately whether it's good or bad for stocks, or which stocks I should buy to make a profit.
I used to be like that too.
But now, rather than the rise in crude oil prices itself, I try to look first at where the impact will spread.
First, separate facts from interpretations
Think in the order of households, companies, prices, interest rates, and the market
Categorize companies into those that sell, those that use, and those that buy, process, and sell crude oil
Look at profits rather than sales
Look at the ability to pass on price increases and the difficulty of being replaced
I feel that organizing things in this order makes it harder to be swayed by the news.
Perhaps news is less about "trying to guess the right investment" and more about "thinking through the path of its impact" (^-^)
■ Related notes
・Middle East news is approaching as gasoline prices: Salience bias [News x Investment Psychology]
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