Foram Crude Oil123

8/2/2019 Foram Crude Oil123

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Impact of Crude Oil Prices on Sensex

Introduction

Oil is the single most important commodity that holds the position of a key factor in each

and every economy of the world. The worlds richest nations are at their current positions

just because of the oil factor. The importance of oil has reached such a level at which there

is no country in the world, which doesnt need oil and its by-products, and if somehow it

doesnt have much reserves of oil to meet their domestic demand, these nations are ready to

import the product at any cost. Many nations have a huge share of their earnings

constituted by oil exports only. Every industry requires oil to function properly either

directly or indirectly as both crude oil and its by-products serve as their inputs. The extent

of the commoditys importance was shown to the world when the worlds most strong

economies were shaken up as the oil prices shot up in 1973 and 1979 when the gulf

countries refused to supply oil to the countries that were the supporters of Israel in its war

with Egypt and Syria. Crude oil alone bears 60% share to meet the global energy needs in

the current scenario. The reason for this high share in the primary energy consumption in

the world is due to the advantages that oil has over the other constituents of primary energy

such as diverse application, comparatively lesser harm to the environment, easy handling,

lower capital costs and above all higher efficiency.

Crude oil reserves on earth are estimated to be more than 1 trillion barrels that are mostly

found in the Middle East, Eastern Europe, Africa and Central America, Middle East being

the top reserve holder. It is a clear fact that oil is a limited resource and would finish off in

a maximum of 80 years if the current rate of consumption continues. Of these 1 trillion

barrels, the world produces around 75 million barrels per day. The largest crude oil

producing country is Saudi Arabia followed by Russia and United States of America. The

refining capacity of oil in the world as in 2002 was 4166 million tons. The consumption of

crude oil in the world has been rising with the change in time and the technologicalimprovements that are accompanying it. Oil is consumed all over the globe, consumption

figures standing at 76 million barrels per day and United States of America consumes the

maximum level of oil in the world. The major consumer countries of crude oil along with

their consumption figures pertaining to the year 2006 are

Navnirman Institute of Management1


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United States of America (20.7 million barrels/day)

China (6.5 million barrels/day)

Japan (5.4 million barrels/day)

Germany (2.6 million barrels/day)

Russia (2.6 million barrels/day)

India (2.3 million barrels/day)

Canada (2.3 million barrels/day)

Brazil (2.2 million barrels/day)

South Korea (2.1 million barrels/day)

France (2.0 million barrels/day)

Mexico (2.0 million barrels/day)

Regarding the world trade situation, one important aspect is the presence of an organization

namely OPEC that controls and regulates the exports and imports of most of the countries

of the world. OPEC stands for Organization of Petroleum Exporting Countries and the

members include all the 11 major crude oil producing countries and nations that are highly

dependent on the revenues from oil and oil products. As a matter of fact, OPEC nations

have 75% of the worlds total crude oil reserves of 1 trillion barrels and control around

40% of the world oil production. OPEC member countries also dominate the world exports

of crude oil contributing to 55% of the total world exports. The major crude oil exporting

countries with their exporting figures are

Saudi Arabia* (8.73 million barrels per day)

Russia (6.67 million barrels per day)

Norway (2.91 million barrels per day)

Iran* (2.55 million barrels per day)

Venezuela* (2.36 million barrels per day)

United Arab Emirates* (2.33 million barrels per day)

Kuwait* (2.20 million barrels per day)

Nigeria* (2.19 million barrels per day)

Mexico (1.80 million barrels per day)



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Algeria* (1.68 million barrels per day)

Iraq* (1.48 million barrels per day)

Libya* (1.34 million barrels per day)

Kazakhstan (1.06 million barrels per day)

Qatar* (1.02 million barrels per day)

In the above list, the countries with the * sign are the member countries of OPEC. The

imports of crude oil are generally done by the countries, which do not have appropriate

reserves of oil and are incapable of satisfying the domestic consumption demand. The

following is list of the countries with their net import figures that are the major importers of

crude oil in the world

United States of America (12.1 million barrels per day)

Japan (5.3 million barrels per day)

China (2.9 million barrels per day)

Germany (2.4 million barrels per day)

South Korea (2.2 million barrels per day)

France (1.9 million barrels per day)

Italy (1.7 million barrels per day)

Spain (1.6 million barrels per day) India (1.5 million barrels per day)

Taiwan (1.0 million barrels per day)

1.2 The History of Crude Oil in World

The history of crude oil supply has been dominated by the time

and place of discoveries, with enormous results on the history of

the 20th century. The History of Crude Oil and Supply Oil has

also been dominated by a few individuals, companies, and

nations, with greed, superb intelligence, and unbelievable

stupidity.



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The modern oil era began in northwest Pennsylvania in the mid-19th century, as shallow

fields were tapped.

The early days of the oil industry were characterized by boom and bust, as new discoveries

first overwhelmed demand, then lagged behind it. Prices fell from $10 a barrel in January

1861 to 10 a barrel in December 1861, but were up to $7.25 a barrel again by September

1863, down to $2.40 in 1867. Fortunes were made and lost in boom towns and stock

speculations that rivalled any in the gold industry.

The innovation that allowed some control over the chaos was the oil pipeline. Barrels (real

barrels, made of oak) were expensive, sometimes worth more than the oil they contained.

They were expensive to transport on wagons, too. By 1866, pipelines, made of wood at

first, had been built to the major producing fields, transporting oil to railheads where tanker

cars could be filled. After that, there was only one real choice: the oil flowed to the nearest

industrial city for refining, Cleveland, Ohio.

It was the genius of John D. Rockefeller that found a way to take advantage of this

situation, which was merely a matter of simple geography. The oil fields were scattered in

rough country, owned by small-time entrepreneurs, and new discoveries were

unpredictable in location and size. They were, however, likely to occur in the same region,and they would be connected by pipelines to the existing rail network, and funneled to

Cleveland. After refining, the kerosene was marketed nation-wide.

Rockefeller reasoned that the way to control the oil industry was within the transportation

and refining section. In particular, refineries were comparatively long-term investments. At

the age of 20, Rockefeller had entered business just as the Civil War began, and made a lot

of money supplying the Army with wheat, salt, and pork.

In 1863 Cleveland was connected with the Pennsylvania oilfields by rail, and Rockefeller

and a partner opened an oil refinery in Cleveland. In 1866 he bought out his partner, and at

the age of 26 owned the largest refinery in the city. Using the size of his shipments to

negotiate low prices for railroad transport, outcompeting his rivals for price and quality,



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Rockefeller and his Standard Oil Company became the largest oil company in North

America, amalgamating and controlling the refining side of the industry. By 1879 Standard

Oil controlled 90% of the refining capacity in the United States, and all the pipelines

flowing out of the Pennsylvania oilfields.

In the 1880s, Standard moved into oilfield production too. By 1890, it was producing or

buying over 80% of the oil produced in the United States, and refining and selling it.

Standard was exporting kerosene, too: half of the kerosene it produced was exported,

mainly to Europe, and kerosene was the fourth-largest American export commodity.

At the end of the century, the Standard Oil Trust controlled the oil industry of the

Americas, while Shell was a major player in much of the rest of the world.

Three major events altered this situation: in 1901 the great Spindletop gusher brought

Texas oil into the picture, eventually bringing Gulf and Texaco into the big leagues; in

1911 the US Government used anti-trust legislation to break up the Standard company; and

the World War of 1914 to 1918 brought to everyone's attention the fact that petroleum was

now vital to waging and winning wars.

The scene was set for oil to dominate much economic, political, and military thinking, and

that situation continues today.

Today, about 90% of vehicular fuel needs are met by oil. Petroleum also makes up 40% of

total energy consumption in theUnited States, but is responsible for only 2% of electricity

generation. Petroleum's worth as a portable, dense energy source powering the vast

majority of vehicles and as the base of many industrial chemicals makes it one of the

world's most importantcommodities.

The top three oil producing countries are Saudi Arabia, Russia, and the United States.

About 80% of the world's readily accessible reserves are located in the Middle East, with

62.5% coming from the Arab 5: Saudi Arabia, UAE, Iraq, Qatar and Kuwait. A large

portion of the world's total oil exists as unconventional sources, such asbitumenin Canada

and Venezuela andoil shale. While significant volumes of oil are extracted from oil sands,

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particularly in Canada, logistical and technical hurdles remain, as oil extraction requires

large amounts of heat and water, making its net energy content quite low relative to

conventional crude oil. Thus, Canada's oil sands are not expected to provide more than a

few million barrels per day in the foreseeable future.

The history of crude oil dates back to the 3rd or 4th century A.D when the presence of oil

was first discovered in China. The oil that the early Chinese people found was found to

have extremely good medicinal value and was used in the salt form. To extract that oil

from under the earths crust, first oil wells of around 243 meters were dug up in that region

with the help of bamboo poles possessing metal tools at their end. The crude oil was also

used for the lighting purposes in Ancient Persia.

When the city of Baghdad was constructed in the 8th century, the streets of that city were

paved with tar that was easily available in the natural oil fields in that region. With the

time, man discovered new and diversified uses of oil and hence the discovery of new oil

fields became an important requirement. People got to know the vast amount of oil that was

hidden under the earths surface as many geographers started predicting it in that time.

All this time oil had a limited use until in 19th century; the process of distillation of

kerosene with the help of coal and rock oil was invented. Production of oil becamecommercialized and it started an era of establishment of oil refineries throughout the world.

One of the first refineries was established at Baku in Russia and it became the worlds

largest oil producing refinery. A Russian engineer F.N Semyonov built the first ever

modern oil well at the same place in 1848. Up till 1950s coal had dominance among the

primary energy constituents but crude oil took over the leadership in a short span of time

and has still maintained its reputation.

1.3 Historyof crude oil in India

India was not known to the world in the context of crude oil and its by-product production.

As late as in 1889, the presence of oil in India was discovered in Digboi in Assam. First

crude oil refinery in India was set up in Digboi in1901. Then the exploration and



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production activities were limited to the North Eastern part of the country. In 1958 and

1974, two more places for crude oil production were identified namely Cambay onshore

basin and Bombay offshore basin. Initially the major international companies were given

the job to explore and produce oil in the country but after the shock in oil prices in 1973,

whole of the sector was nationalized.

Oil India (OIL) is a large state-owned oil and gas company in India under the

administrative control of the Ministry of Petroleum and Natural Gas of the Government of

India. OIL is engaged in the business of exploration, development and production of crude

oil and natural gas, transportation of crude oil and production ofliquid petroleum gas. The

story of Oil India Limited (OIL) traces and symbolizes the development and growth of the

Indian petroleum industry. From the discovery of crude oil in the far east of India atDigboi, Assam in 1889 to its present status as a fully integrated upstream petroleum

company, OIL has come far, crossing many milestones.

OIL is the pioneer in exploration and production of hydrocarbons in India, and traces its

roots back to Oil India Private Ltd., formed in 1959 with The Burmah Oil Company Ltd.

holding two-thirds ofequity and Government of India holding one-third. Oil India Private

evolved into Oil India Ltd., which was an equal partnership between Burmah Oil and

Government of India. In 1983 the company became a public sectorundertaking of theGovernment of India.

The Company presently produces over 3.2 MMTPA (million tons per annum) of crude oil,

over 5 MMSCMD of Natural Gas and over 50,000 Tones of LPG annually. Most of this

emanates from its traditionally rich oil and gas fields concentrated in the Northeastern part

of India and contribute to over 65% of total Oil&Gas produced in the region. The search

for newer avenues has seen OIL spreading out its operations in onshore / offshore Orissa

and Andaman, deserts of Rajasthan, plains of Uttar Pradesh, riverbeds of Brahmaputra and

offshore Saurashtra. In Rajasthan, OIL discovered gas in 1988, heavy oil / bitumen in 1991

and started production of gas in 1996. The company has accumulated over a hundred years

of experience in the field of oil and gas production, since the discovery of Digboi oilfield in

1889. It is possibly the only company to do so. From well completion to wellbore

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servicing, installation, operation and maintenance of modern surface handling facilities, the

company has the skill and expertise to manage the entire range of operations required for

onshore oil and gas production.

The company has over 100,000 square kilometres of license areas for oil and gas

exploration. It has emerged as a consistently profitable international company with

exploration blocks as far as Libya and sub-Saharan Africa.

In recent years, OIL has stepped up E & P activities significantly including Gas

monetization in the North-East India. OIL has set up the NEF (North East Frontier) project

to intensify its exploration activities in the frontier areas in North East, which are

logistically very difficult and geologically complex. Presently, seismic surveys are being

carried out in Manbhum, Pasighat and other Trust Belt areas. The Company operates a

crude oil pipeline in the North East for transportation of crude oil produced by both OIL

and ONGCL in the region to feed Numaligarh, Guwahati, Bongaigaon and Barauni

refineries and a branch line to feed Digboi refinery.

Categories of crude oil

The various types of crude oils are classified according to their geographical originations,

sulfur level and also the density of the oils in some cases. For differentiation depending

upon the gravity of oils, the American Petroleum Institute (API) provides with a basis to

measure its density, which is called the API gravity. The crude oils are then termed as

heavy or light oil. They are also divided as per the sulfur level present in them, as

sweet or sour. But, mostly, crude oil is classified on the basis of location only as oils

from different locations have different characteristics and they are also named after the

places of origin. The main types of crude oil according to their geographic locations are

1. North Sea Crudes Considered as bench mark

API gravity around 38.5 degrees

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Sulfur level - 0.36%

Examples - Brent, Forties, Osberg, North Sea Basket, Ekofisk,

Statfjord and Flotta

2. West African Crudes

API gravity - around 35 degrees

Sulfur level 0.2%

Examples - Bonny Light, Qua Iboe, Brass River, Escravos, Forcados

and Cabinda

3. Persian Gulf Crudes

API gravity around 37 degrees

Sulfur level 1.08%

Examples - Dubai and Oman assessments, Murban, Lower Zakum,

Qatar Land, Qatar marine and Banoco Arab Medium

4. United States Crudes

API gravity variable, around 39.6 degrees

Sulfur level variable, around 0.24%

Examples - West Texas Intermediate (WTI), Mars MOC and Mars,

P - Plus WTI, WTI Calendar Delta, West Texas Sour (WTS), Light

Louisiana Sweet (LLS), Heavy Louisiana Sweet (HLS), Engene Island,

Wyoming Sweet, Bonito, Mars, Poseidon, Basrah Light, Alaska North

Slope (ANS), Line 63, P-Plus Line 63, Thums, Kern River

5. Asia Pacific Crudes

Examples - Tapis, Belinda, Cossack, Jabiru, North West Shelf, Mirietc

1.4 List of Main Oil Producing Countries



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The definitive list of top ten oil producing countries in the world

for the year 2008?

List of Main World Oil Producing Countries in 2008

As you can see from the top ten list below, Russia has moved up

from previous years, with Saudi Arabia still topping the list as per

usual.

According to April 2008 statistics from the Central Intelligence Agencys World Factbook,

global oil production in 2005 was 78.9 million barrels per day.

World consumption of oil per day was 80.3 million barrels for the same period, using up

1.7% more than what was produced.

1. Saudi Arabia 11 million barrels per day (13.9% of estimated world

total)

2. Russia 9.9 million bpd (12.5%)

3. United States 8.3 million bpd (10.5%)

4. Iran 4.2 million bpd (5.3%)

5. Mexico 3.8 million bpd (4.8%)

6. China 3.7 million bpd (4.7%)

7. Canada 3.1 million bpd (3.9%)

8. Norway 3 million bpd (3.8%)

9. Venezuela 2.8 million bpd (3.6%)



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10. Kuwait 2.7 million bpd (3.4%)

Other Big Oil Producing Countries in 2008 - (11 to 20)

11. United Arab Emirates 2.5 million barrels per day (3.2% of estimatedworld total)

12. Nigeria 2.4 million bpd (3.1%)

13. Iraq 2.11 million bpd (2.7%)

14. Algeria 2.1 million bpd (2.6%)

15. United Kingdom 1.9 million bpd (2.4%)

16. Libya 1.7 million bpd (2.2%)

17. Brazil 1.6 million bpd (2%)

18. Kazakhstan 1.4 million bpd (1.7%)

19. Angola 1.3 million bpd (1.6%)

20. Qatar 1.1 million bpd (1.4%)

Russia produces about 240% more oil than it consumes. Similarly, Mexicos oil production

was 39% greater than domestic consumption while Canada output 35% more oil than it

used in 2005. China generated about 16% more oil than it consumed.

In contrast, India consumes two-thirds more oil than its produces. America consumes a

third more than domestic oil production. Although rich in natural resources, Brazils oil

consumption outpaces its fuel production by almost 25%.



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1.5 How Crude Oil is Bought and Sold?

How Crude Oil is Bought and Sold?

Crude oil is traded on the main world futures exchanges being

the NYMEX and ICE futures exchanges. There are also several

trading service providers who offer oil trading at leverage to

individuals via internet futures trading accounts.

Crude oil is bought and sold in vast quantities (oil is the most traded commodity on the

planet) by investors, companies and individuals alike.

These days investors maybe looking to broaden their portfolios by investing in

commodities, a good example is gold, however oil prices offer larger gains, or indeed

losses, as oil futures prices can swing wildly and have done so for the last few years.

1.6 Production of Crude Oil in India

India is not among the major producers of crude oil, as it doesnt have much oil reserves.

That is why it generally depends on imports of crude oil from other countries. However,

the production of oil and as a result the production of its by-products in India has increased

in the recent past due to exploration and findings of new oil reserves. India currently has an

estimated quantity of 5.4 billion barrels of oil reserves out of which it produces around 0.8

million barrels per day. At this production level, the oil reserves in India would last for

around 29 years. The major oil reserves of the country are situated at

Mumbai high (Mumbai) Upper Assam (Assam)

Cambay (Gujarat)

Krishna-Godavari basin (Andhara Pradesh)

Cauvery basin (Tamil Nadu)



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Nagaland

Arunachal Pradesh

The largest crude oil producing oilfield is the Mumbai high field that produces around

260000 barrels per day. Among these production centers, major share of production i.e.

2/3rd share is bagged by the offshore reserves as compared to onshore reserves. The

refining capacity of crude oil in India is over 2.1 million barrels per day. The refining

sector in India is held by both public and private sector, public sector being the dominating

one.

1.7 Indian Crude Oil Market

India is one of the non-OPEC countries much dependent on its imports to fulfill the

domestic consumption demand as it has a much lower level of production. India is a

developing country and the requirement for the oil as a primary energy constituent from the

industries in the country is at its peak. The country has much depended on coal to satisfy its

energy needs in the earlier times but the use of crude oil and gas is taking over the

dominance of coal with the change in time. Oil and gas contribute to around 45% of the

countrys total energy consumption.

India has around 5.4 billion barrels of oil reserves with it and the domestic production has

increased in the recent past to reach the 0.8 million barrels per day mark. Mumbai high is

the largest oil-producing oilfield in India with a production of 2.6 lakh barrels per day. The

refining capacity of crude oil in India is estimated at around 2.1 million barrels per day.

Regarding the consumption pattern of oil in India, it is the 6th largest consumer country in

the world having a consumption of 2.2 million barrels per day. This leaves the country with

a huge deficit in the demand-supply scenario and thus 70% of the consumption is met

through imports.

India generally imports Oman-Dubai sour grade crude, Brent dated sweet crude and Bonny

light crude. The country imports over 1.5 million barrels per day that place it at the 9th

position among the largest importers of the world. Though the Indian production has



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increased in the recent times, the imports were raised by 5% making due to the raised

Indian demand of around 4.2%. The countries from which India imports crude oil are

Venezuela

Nigeria

Sudan

Iran

Kuwait

The Indian oil-refining sector has been regulated by the government historically and is still

dominated. A new private sector has emerged after the loosening of control by the

government. The major units pertaining to the oil sector in India are

Indian Oil Corporation (Public sector)

Oil and Natural Gas Corporation (Public sector)

Reliance India Ltd (Private sector)

Essar Oil Refinery (Private sector)

Bharat Petroleum Corporation Ltd (Public sector)

Hindustan Petroleum Corporation Ltd (Public sector)

Manglore Refineries and Petrochemicals Ltd (Public sector)

Market Influencing Factors

Production of the major oil producing countries

Various climatic or political supply fluctuations

World oil demand

Fluctuations in the value of dollar

Imports from various world oil organizations like API, DOE Refinery fire

Major trading centers of crude oil

The major trading centers of crude oil in the world are



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New York Mercantile Exchange (NYMEX)

International Petroleum Exchange of London (IPE)

Tokyo Commodity Exchange (TOCOM)

In India, crude oil is traded at various commodity exchanges namely Multi Commodity

Exchange of India and National Commodity and Derivatives Exchange Ltd.

1.8 Price of Crude Oil

The high demand economies of crude oil are putting undue pressure on

the available fixed resources. The major gap created between demand

and supply of crude oil is forcing the price curve of crude oil to rise in

upward direction.

The crude oil price impacts two key aspects of our economy: -

(1) The import bill

Since, we are a net importer of oil. The increasing import bill will widen

our Trade Balance, defined as Exports minus Imports, which has been

perpetually running at a deficit and possibly wipe out our current account

surplus, which is Trade Balance minus Net Invisibles, which has

turned from deficit into surplus over the last few years. Higher trade balance will adversely

impact the fiscal deficit, which in turn will impact the interest rates.Hence the stock market

is impacted.

(2)Inflation

Since petroleum products are key constituents of Wholesale and Consumer

Price Inflation Index. Higher import bill directly and indirectly impacts the

rupee, while inflation impacts interest rates, and hence evens the rupee. These

factors obviously affect our GDP growth rates. All these factors individually andcollectively could have a negative Impact on the stock market.

1.9 Factor affecting Crude Oil Prices

Production:



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The OPEC nations are the major producer of world's crude oil. Therefore, every policy

made by such countries related to the crude oil prices has their influence on crude oil

prices. Any decision taken by OPEC nations for increasing or decreasing production of

crude oil impacts the price level of crude oil in international commodity markets.

Natural Causes:

In prevent years, global community have witnessed many events which in turns have

volatility effects on the price level of crude oil. Like hurricane Katrina and other type of

tropical cyclone have hit the major portion of globe, which as a result driven the crude oil

prices to reach at its peak.

Inventory:

In throughout the world, oil producers and consumers get stock their crude oil for theirfuture requirements. This gives rise to speculation on price expectations and sale chances in

case any unexpected thing cracks during supply and demand equations. Any upward or

downward movement in inventory level shoots up volatility in price index of crude oil,

which generates lot of changing movement in sensex.

Demand & Supply:

With a sharp rise in economic demand requirement of crude oil is increasing to manifold in

context to the limited supply.

1.10 'Organization of the Petroleum Exporting Countries'

The 'Organization of the Petroleum Exporting Countries' (OPEC, pronounced / o p k/

OH-pek) is an intergovernmental organization of twelve developing countries made up of

Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the

United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna

since 1965, and hosts regular meetings among the oil ministers of its Member Countries.

Indonesia withdrew in 2008 after it became a net importer of oil, but stated it would likely

return if it became a net exporter again.

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According to its statutes, one of the principal goals is the determination of the best means

for safeguarding the organization's interests, individually and collectively. It also pursues

ways and means of ensuring the stabilization of prices in international oil markets with a

view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to

the interests of the producing nations and to the necessity of securing a steady income to

the producing countries; an efficient and regular supply ofpetroleum to consuming nations,

and a fair return on their capital to those investing in the petroleum industry.

OPEC's influence on the market has been widely criticized, since it became effective in

determining production and prices. Arab members of OPEC alarmed the developed world

when they used the oil weapon during the Yom Kippur War by implementing oil

embargoes and initiating the 1973 oil crisis. Although largely political explanations for thetiming and extent of the OPEC price increases are also valid, from OPECs point of view,

these changes were triggered largely by previous unilateral changes in the world financial

system and the ensuing period of high inflation in both the developed and developing

world. This explanation encompasses OPEC actions both before and after the outbreak of

hostilities in October 1973, and concludes that OPEC countries were only 'staying even'

by dramatically raising the dollar price of oil.

OPEC's ability to control the price of oil has diminished somewhat since then, due to thesubsequent discovery and development of large oil reserves in Alaska, the North Sea,

Canada, the Gulf of Mexico, the opening up of Russia, and market modernization. As of

November 2010, OPEC members collectively hold 79% of world crude oil reserves and

44% of the worlds crude oil production, affording them considerable control over the

global market. The next largest group of producers, members of the OECD and the Post-

Soviet states produced only 23.8% and 14.8%, respectively, of the world's total oil

production. As early as 2003, concerns that OPEC members had little excess pumping

capacity sparked speculation that their influence on crude oil prices would begin to slip.

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1.11 World Crude Oil Reserves

World crude oil reserves, a finite, non-renewable resource,

one that has powered phenomenal economic and population

growth over the last century and a half.

World Crude Oil Reserves, Running Low?

Once we have used up about half of the original reserves, oil

production becomes ever more likely stop growing and

begin a terminal decline.

Oil companies have, naturally enough, extracted the easier to reach , cheap crude oil first.

The oil pumped first was on land, near the surface, under pressure, light and 'sweet'

(meaning low sulfur content) and therefore easy to refine.

The remaining oil is more likely to be off-shore, far from markets, in smaller fields and of

lesser quality. It therefore takes ever more money and energy to extract, refine and

transport.

Under these conditions, the rate of production inevitably drops. Furthermore, all oil fields

eventually reach a point where they become economically, and energetically, no longerviable. If it takes the energy of a barrel of oil to extract a barrel of oil, then further

extraction is pointless, no matter what the price of oil.



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Whether or not we've passed the peak of crude oil reserves, a more significant question

may be: What will be the future rate of decline of oil production?

Some form of co-ordinated adaptation might be possible if the annual drop in available oil

was no more severe than 1-2% a year. Whereas 10% or more would soon implode the

global economy. Most models project decline rates of 2-4%.

1.12 Global Crude Oil Discoveries

What were the main crude oil and gas discoveries for the year

ending 2008?

Global Crude Oil Discoveries for 2008

The year 2008 was marked by record crude oil prices and the

US credit crisis turning into a global financial crisis leading to

a slowdown in the global economic growth.

The price of crude oil as highly volatile in 2008 rising to $147 by mid 2008 and crashing

down to less than $ 40 by the end of the year. However, 2008 was also a year of significant

oil and gas discoveries.

Some of the discoveries were made in more established regions and basins, while some

discoveries also highlighted the potential regions or basins, which can be taken up for

future exploration activities.

Seven of the ten largest oil and-gas discoveries worldwide in 2008 occurred in Latin

America, reaffirming the region's promising potential for hydrocarbon exploration. But

despite its considerable oil and gas deposits, Latin America still faces some of the samechallenges that have repelled investors before.

This year's discoveries - five in Brazil, one in Peru and one in Bolivia - and other major

finds in recent years, are bringing about a rebirth for the region in the eyes of international

oil companies that had curbed investment due to political instability and aging fields.



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1.13 Crude Oil and Global Warming

Global warming means that most global countries should no

longer burn oil, fuel or gasoline in such vast quantities as

current levels seem to be having a warming effect.

Crude Oil and Global Warming, Is it all Crude's Fault?

Oil is a major player when looking at burning fossil fuels

and global warming, however coal is still widely burned at

massive levels and is still increasing, hence not all crude's

fault.

Crude oil found in the earth is a part of the natural carbon cycle and its removal and

redeposition has been taking place on the planet for hundreds of millions of years since life

forms initially became productive enough to leave deposits of organic material behind in

sedimentary rocks.

Will we be looking at an even lower demand growth rate in the future? Only time will tell.

For the world's oil market, slower demand growth may be perceived as a relief valve from

pending peak oil concerns.

While slower demand growth will take some pressure off the supply challenge, aging oil

fields and accelerating depletion rates remain a relentless cancer in the industry. The recent

media flap over comments by Fatih Birol, chief economist at the IEA, about a peak in

global oil production coming much sooner in time than the agency has publicly



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acknowledged may be the tip of the iceberg highlighting that depletion has displaced

growth as the principal driver for the global oil business.

While finding new fields will remain important, the oil industrys focus increasingly will

be on the critical issue of how to get more from existing reservoirs and how best to extract

the lower quality unconventional oil resources around the world.

1.14Relationship between crude oil and Sensex

Relationship between crude oil and Sensex. There will be great combinations of crude oil

and stock market since major world economy are base on crude oil and US dollars, if we

take current example last 40 days crude oil has come down approximately 22% and Sensex

has shoot up around 23%. It is easy to understand that crude oil is directly link with

inflations and crude oil but relationship between crude oil and Sensex is not so easy. If you

look at past history Indian stock market has started to shooting up around May 2003 to Dec

2007 As per statistic around 550% gain has been registered on monthly closing levels

which has come down to 270% if we take 52 weeks levels. Now look at crude oil statistics

Crude oil started his upward journey from US$ 25 in April 2003, in Dec 2007 it was below

$100 and gone up it's all time highest levels$146 in June 2008 still Indian stock market was

keep shooting up like rocket till Dec 2007inpite of around gain of crude oil ($25 to $95 tillDec 07), what is this all about? How we can relate price of crude oil and Sensex always

and every time? If crude oil has gained it all time high then oil-producing companies

should also share success story of crude oil shoot up at world levels. If you look at their

balance sheets of all major oil companies at world levels gain have not been registered

because of US dollars depreciations. So it is us dollar and crude oil both to decide to

market trend. Fortunetly last couple of weeks crude oil has shown big dip and Us dollars

shown big gain against Euro, result is with us Stock market up by 23% in few weeks.(5-6

weeks time ) Now it is advise to book profit 70% of delivery calls .If you remember that

during first week of July 2008 we have recommended to invest in selected 16 stocks for 45

days now 45 days are over time to book profit .

1.15 What causes low oil prices?Navnirman Institute of Management21
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Low prices of crude oil can be caused by a number of factors. Basically, it could be due to

an imbalance between supply and demand - too much supply or too little demand.

OPEC Member Countries have always tried to adjust their crude oil supplies to improve the

balance between supply and demand. OPEC's aim at all times is to maintain steady supplies

of oil to consumers, while securing a reasonable return for its Member Countries. However,

OPEC cannot be expected to achieve this on its own.

Most non-OPEC oil producers supply as much oil as they can. This makes it difficult for

OPEC to maintain stability in the oil market and results in losing market share and

potential revenue for the organization.

If oil production rises faster than demand, then prices can fall and all oil producers will

suffer. In the long run, consumers will also suffer if the oil industry is unprofitable and

unattractive to investors.

1.16 What causes high crude oil prices?

High crude oil prices could be due to a shortage of oil supplies. High prices for oil

products - as purchased by end consumers such as motorists - are more likely to reflect

other factors, such as taxation.

Crude oil prices react to the balance of demand and supply in the short term, and the rate of

investment in the longer term. If investment is not made far enough in advance, oil supplies

could be limited in the longer term, thus raising prices. Sentiment is also an important

factor: if traders in the oil market believe there will be a shortage of oil supplies, they may

raise prices before a shortage actually occurs. Other factors influencing the price of crude

oil include accidents, bad weather, increasing demand, halting transport of oil fromproducers, labour disputes (strikes) as well as other disruptions to production including war

and natural disasters.

Crude oil now represents less than a quarter of the price of oil products in many countries.

Therefore, taxes have more influence over the price of oil products. When oil taxes are



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raised, end consumers often mistakenly blame the oil producers, but it is really their own

governments that are responsible.

OPEC seeks a stable oil market, without sudden price changes or excessively high or low

prices. OPEC regularly meets with other oil producers and with consumers in an effort to

improve understanding and trust in the oil industry and to seek policies and measures that

do not create unnecessary economic hardship for oil producers or consumers.

1.17 What happen if oil prices go up or down?

The world lives on oil. Oil is the foundation for the plastics and petrochemical industries.

Oil is fundamental to the welfare of the industrialized world and it is a major component of

the farming industry.

The price of oil is reflected in most of the things we do. It impacts on the price of transport,

the cost of goods and services, and the availability of many products, including food, water

and shelter.

If oil prices are too high, then these goods and services become more expensive and

economies experience inflation. Alternative forms of energy would also become more cost-

competitive, but oil producers would eventually increase their supplies and prices would

come back down.

If oil prices are too low, consumers would waste this non-renewable resource, investors

would not be attracted to the industry and oil producers would suffer - especially the

developing countries that produce oil, such as the OPEC Member Countries. If prices were

too low, supplies would eventually fall until there was a price shock - leading back to

inflation.

Oil prices that are too high or too low are clearly unhelpful for oil producers, oil consumers

and the world at large. That is why OPEC makes quite sure that the market is not under-

supplied with oil, forcing prices to go excessively high, and also that the market is not

over-supplied so that prices go too low. It also speaks to other oil producers to encourage



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them to avoid over-supplying the market. It is also why OPEC talks to oil consumers to

encourage them to adopt fair and equitable policies that do not discriminate against oil. We

would all suffer without steady supplies of oil at stable, reasonable prices.

1.18 BSE Sensex History

What is the BSE Sensex?

The BSE Sensex Index is the value-weighted average for the Bombay Stock Exchange.

The Sensex is comprised of the 30 blue chip stocks from the Bombay Stock Exchange and

is the equivalent to the Dow Jones in India. These top 30 stocks account for one-fifth of all

the market capitalization on the Bombay Stock Exchange. Since these baskets of stocks

reflect the broaderIndian Stock Market, the Sensex is recognized around the world as the

key indicator for the health of the Indian economy.

History of the BSE Sensex

The Sensex started with a base value of 100 and tracking began for the index on April 1,

1979. The Sensex officially began being published to the world in April 1984. The Sensex

is the oldest index in India.

The 'BSE SENSEX' is a value-weighted index composed of 30 stocks and was started on

January 1, 1986. The Sensex is regarded as the pulse of the domestic stock markets in

India. It consists of the 30 largest and most actively traded stocks, representative of various

sectors, on the Bombay Stock Exchange. These companies account for around fifty per

cent of the market capitalization of the BSE. The base value of the sensex is 100 on April1, 1979, and the base year of BSE-SENSEX is 1978-79.

SENSEX, first compiled in 1986, was calculated on a "Market Capitalization-Weighted"

methodology of 30 component stocks representing large, well-established and financially

sound companies across key sectors. The base year of SENSEX was taken as 1978-79.

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SENSEX today is widely reported in both domestic and international markets through print

as well as electronic media. It is scientifically designed and is based on globally accepted

construction and review methodology. Since September 1, 2003, SENSEX is being

calculated on a free-float market capitalization methodology. The "free-float market

capitalization-weighted" methodology is a widely followed index construction

methodology on which majority of global equity indices are based; all major index

providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-float methodology.

The growth of the equity market in India has been phenomenal in the present decade. Right

from early nineties, the stock market witnessed heightened activity in terms of various bull

and bear runs. In the late nineties, the Indian market witnessed a huge frenzy in the 'TMT'

sectors. More recently, real estate caught the fancy of the investors. SENSEX has capturedall these happenings in the most judicious manner. One can identify the booms and busts of

the Indian equity market through SENSEX. As the oldest index in the country, it provides

the time series data over a fairly long period of time (from 1979 onwards). Small wonder,

the SENSEX has become one of the most prominent brands in the country.

The BSE SENSEX consistes of the following companies:

Bajaj Auto Limited, Bharti Airtel Ltd., Bharat Heavy Electricals Ltd., Cipla Ltd., DLF Ltd.,HDFC, HDFC Bank Ltd., Hero Honda Motors Ltd., Hindalco Industries Ltd., Hindustan

Unilever Ltd., ICICI Bank Ltd., Infosys Technologies Ltd., ITC Ltd., Jaiprakash Associates

Ltd., Jindal Steel & Power Ltd., Larsen & Toubro Ltd., Mahindra & Mahindra Ltd., Maruti

Suzuki India Ltd., NTPC Ltd., ONGC Ltd., Reliance Industries Ltd., Reliance

Communications Ltd., Reliance Infrastructure Ltd., State Bank of India, Sterlite Industries

(India) Ltd., Tata Motors Ltd., Tata Power Company Ltd., Tata Steel Ltd., Tata

Consultancy Services Ltd., Wipro Ltd.

1.19 Maintenance of SENSEX

One of the important aspects of maintaining continuity with the past is to update the base

year average. The base year value adjustment ensures that replacement of stocks in Index,



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additional issue of capital and other corporate announcements like 'rights issue' etc. do not

destroy the historical value of the index. The beauty of maintenance lies in the fact that

adjustments for corporate actions in the Index should not per se affect the index values.

The BSE Index Cell does the day-to-day maintenance of the index within the broad index

policy framework set by the BSE Index Committee. The BSE Index Cell ensures that

SENSEX and all the other BSE indices maintain their benchmark properties by striking a

delicate balance between frequent replacements in index and maintaining its historical

continuity. The BSE Index Committee comprises of capital market expert, fund managers,

market participants and members of the BSE Governing Board.

On-Line Computation of the Index

basis of prices at which trades in Index constituents are executed. During trading hours,

value of the Index is calculated and disseminated on real time basis. This is done

automatically on the

1.20 SENSEX - Scrip Selection Criteria

1. Equities of companies listed on Bombay Stock Exchange Ltd. (excluding

companies classified in Z group, listed mutual funds, scrips suspended on the last

day of the month prior to review date, scrips objected by the Surveillance

department of the Exchange and those that are traded under permitted category)

shall be considered eligible

2. Listing History: The scrip should have a listing history of at least three months at

BSE. An exception may be granted to one month, if the average free-float market

capitalization of a newly listed company ranks in the top 10 of all companies listed

at BSE. In the event that a company is listed on account of a merger / demerger /

amalgamation, a minimum listing history is not required.



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3. The scrip should have been traded on each and every trading day in the last three

months at BSE. Exceptions can be made for extreme reasons like scrip suspension

etc.

4. Companies that have reported revenue in the latest four quarters from its coreactivity are considered eligible.

5. From the list of constituents selected through Steps 1-4, the top 75 companies

based on free-float market capitalization (avg. 3 months) are selected as well as any

additional companies that are in the top 75 based on full market capitalization (avg.

3 months).

6. The filtered list of constituents selected through Step 5 (which can be greater than75 companies) is then ranked on absolute turnover (avg. 3 months).

7. Any company in the filtered, sorted list created in Step 6 that has Cumulative

Turnover of >98%, are excluded, so long as the remaining list has more than 30

scrips.

8. The filtered list calculated in Step 7 is then sorted by free float market

capitalization. Any company having a weight within this filtered constituent list of


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Concept

Free-float methodology refers to an index construction methodology that takes into

consideration only the free-float market capitalization of a company for the purpose of

index calculation and assigning weight to stocks in the index. Free-float market

capitalization takes into consideration only those shares issued by the company that are

readily available for trading in the market. It generally excludes promoters' holding,

government holding, strategic holding and other locked-in shares that will not come to the

market for trading in the normal course. In other words, the market capitalization of each

company in a free-float index is reduced to the extent of its readily available shares in the

market.

Subsequently all BSE indices with the exception of BSE-PSU index have adopted the free-

float methodology.

Major advantages of Free-float Methodology

A Free-float index reflects the market trends more rationally as it takes into

consideration only those shares that are available for trading in the market.

Free-float Methodology makes the index more broad-based by reducing theconcentration of top few companies in Index.

A Free-float index aids both active and passive investing styles. It aids active

managers by enabling them to benchmark their fund returns vis- -vis an investible

index. This enables an apple-to-apple comparison thereby facilitating better

evaluation of performance of active managers. Being a perfectly replicable

portfolio of stocks, a Free-float adjusted index is best suited for the passive

managers as it enables them to track the index with the least tracking error.

Free-float Methodology improves index flexibility in terms of including any stock

from the universe of listed stocks. This improves market coverage and sector

coverage of the index. For example, under a Full-market capitalization

methodology, companies with large market capitalization and low free-float cannot

generally be included in the Index because they tend to distort the index by having



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an undue influence on the index movement. However, under the Free-float

Methodology, since only the free-float market capitalization of each company is

considered for index calculation, it becomes possible to include such closely held

companies in the index while at the same time preventing their undue influence on

the index movement.

Globally, the Free-float Methodology of index construction is considered to be an

industry best practice and all major index providers like MSCI, FTSE, S&P and

STOXX have adopted the same. MSCI, a leading global index provider, shifted all

its indices to the Free-float Methodology in 2002. The MSCI India Standard Index,

which is followed by Foreign Institutional Investors (FIIs) to track Indian equities,

is also based on the Free-float Methodology. NASDAQ-100, the underlying index

to the famous Exchange Traded Fund (ETF) - QQQ is based on the Free-floatMethodology.

Definition of Free-float

Shareholding of investors that would not, in the normal course come into the open market

for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-

float. Specifically, the following categories of holding are generally excluded from the

definition of Free-float:

Shares held by founders/directors/ acquirers which has control element

Shares held by persons/ bodies with "Controlling Interest"

Shares held by Government as promoter/acquirer

Holdings through the FDI Route

Strategic stakes by private corporate bodies/ individuals



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Equity held by associate/group companies (cross-holdings)

Equity held by Employee Welfare Trusts

Locked-in shares and shares which would not be sold in the open market in normal

course.

Index Closure Algorithm

The closing SENSEX on any trading day is computed taking the weighted average of all

the trades on SENSEX constituents in the last 30 minutes of trading session. If a SENSEX

constituent has not traded in the last 30 minutes, the last traded price is taken for

computation of the Index closure. If a SENSEX constituent has not traded at all in a day,

then its last day's closing price is taken for computation of Index closure. The use of Index

Closure Algorithm prevents any intentional manipulation of the closing index value.



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2.1 SENSEX Calculation Methodology

SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein;

the level of index at any point of time reflects the free-float market value of 30 component

stocks relative to a base period. The market capitalization of a company is determined by

multiplying the price of its stock by the number of shares issued by the company. This

market capitalization is further multiplied by the free-float factor to determine the free-float

market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points. The

notation 1978-79=100 often indicates this. The calculation of SENSEX involves dividing

the free-float market capitalization of 30 companies in the Index by a number called the

Index Divisor. The Divisor is the only link to the original base period value of the

SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index

adjustments arising out of corporate actions, replacement of scrips etc. During market

hours, prices of the index scrips, at which latest trades are executed, are used by the tradingsystem to calculate SENSEX on a continuous basis.

At regular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its

composition to be sure it reflects current market conditions. The index is calculated based

on a free float capitalization method; a variation of the market cap method. Instead of using

a company's outstanding shares it uses its float, or shares that are readily available for

trading. The free-float method, therefore, does not include restricted stocks, such as those

held by promoters, government and strategic investors.

Initially, the index was calculated based on the full market capitalization method.

However this was shifted to the free float method with effect from September 1, 2003.

Globally, the free float market capitalization is regarded as the industry best practice.



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As per free float capitalization methodology, the level of index at any point of time reflects

the free float market value of 30 component stocks relative to a base period. The Market

Capitalization of a company is determined by multiplying the price of its stock by the

number of shares issued by the company. This Market capitalization is multiplied by a free

float factor to determine the free float market capitalization. Free float factor is also

referred as adjustment factor. Free float factor represent the percentage of shares that are

readily available for trading.

The Calculation of Sensex involves dividing the free float market capitalization of 30

companies in the index by a number called Index divisor. The Divisor is the only link to

original base period value of the Sensex. It keeps the index comparable over time and is the

adjustment point for all Index adjustments arising out of corporate actions, replacement ofscrips, etc.

The index has increased by over ten times from June 1990 to the present. Using

information from April 1979 onwards, the long-run rate of return on the BSE Sensex works

out to be 18.6% per annum, which translates to roughly 9% per annum after compensating

forinflation.

2.2 Calculation of Crude Oil Price

Determining the price of gasoline and crude oil is a complex matter that takes into

consideration several factors such as the oil grade, the location, source, destination, the

supply and demand, potential major crises in oil-producing countries (higher threat of

which could shoot up worldwide oil prices) and a lot of other global and national

benchmarks.

The world oil price is the value of all the oil imported into the United States. Pricingmarkers or reference markers currently are the West Texas Intermediate (WTI) crude oil,

which is superb quality crude oil that makes for excellent gasoline; Brent Blend, which is

the major benchmark throughout Europe and Africa and which is also excellent though of

lower quality than WTI; OPEC (or Organization of Petroleum Exporting Countries) Basket

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Price, which comes from countries such as Mexico, Dubai and Saudi Arabia they are

typically priced the lowest for their quality of crude oil is lowest, owing to high sulphur

content, thereby making it least useful for making gasoline. These pricing markers are the

ones to which other crude oil are priced against. For example, a country using WTI as

pricing marker would refer to other oil prices as WTI minus $0.75.

Oil is marketed in commodities markets. These markets, such as the New York Mercantile

Exchange (NYMEX), have experts negotiating for the prices of oil based on transactions

and futures markets. Futures markets refer to how traders would agree upon a future price

of a commodity, based on market trends standards, supply and demand, etc. The

commodities futures work like this: buyers and sellers would agree upon a selling price to

be honored at a specific date. Though this trading is usually based upon the external factorsimpacting the value of oil, this trading in itself could also be a determining factor on oils

value. It can get very complicated but you can read more about this process at the

Commodities Futures Trading Commission website.

The market price of oil is a major determining factor in a countrys economy. Conversely,

the economy is also a factor that determines oil prices. To illustrate, in January 1999 which

was around the time of the Asian financial crisis, prices per barrel shot down to $16 as

there was a negative downturn for demand. For major oil-producing companies, whichderive most of their economic income from oil exports, low oil and fuel prices would mean

a weaker economy. For example, as the world everywhere experiences recession (which

means lower demands for oil) in 2008 oil prices went down from $150 to $40 a barrel in

a space of only 5 months oil exporting countries such as Russia were the some of the

countries that showed major economic downfall.

2.3 Meaning and Calculation of Correlation

Definition:

Correlation is a statistical measurement of the relationship between two variables. Possible

correlations range from +1 to 1. A zero correlation indicates that there is no relationship



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between the variables. A correlation of 1 indicates a perfect negative correlation, meaning

that as one variable goes up, the other goes down. A correlation of +1 indicates a perfect

positive correlation, meaning that both variables move in the same direction together.

The correlation is one of the most common and most useful statistics. A correlation is a

single number that describes the degree of relationship between two variables.

If r is close to 0, it means there is no relationship between the variables. If r is positive, it

means that as one variable gets larger the other gets larger. If r is negative it means that as

one gets larger, the other gets smaller (often called an "inverse" correlation).

While correlation coefficients are normally reported as r = (a value between -1 and +1),

squaring them makes then easier to understand. The square of the coefficient (or r square)

is equal to the percent of the variation in one variable that is related to the variation in the

other. After squaring r, ignore the decimal point. An r of .5 means 25% of the variation is

related (.5 squared =. 25). An r-value of .7 means 49% of the variance is related (.7 squared

= .49).

A correlation report can also show a second result of each test - statistical significance. In

this case, the significance level will tell you how likely it is that the correlations reported

may be due to chance in the form of random sampling error. If you are working with small

sample sizes, choose a report format that includes the significance level. This format also

reports the sample size.

A key thing to remember when working with correlations is never to assume a correlation

means that a change in one variable causes a change in another. Sales of personal

computers and athletic shoes have both risen strongly in the last several years and there is a

high correlation between them, but you cannot assume that buying computers causes

people to buy athletic shoes (or vice versa).



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The formula for the correlation is:

We use the symbol r to stand for the correlation. Through the magic of mathematics it

turns out that r will always be between -1.0 and +1.0. If the correlation is negative, we have

a negative relationship; if it's positive, the relationship is positive



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3.1 Objective of the Study: -

(1) Primary Objective: - To analysis the impact of Crude oil onSensex.

(2) Secondary Objective: - To study the relation between Crude Oil

Prices and Sensex Value.

3.2 Types of Research Design: -

In this project, Causal Research Design is used. Because in

this we study cause and effect relationship between Crude Oil Price and SensexValue. In this Crude Oil Price is cause and Sensex Value is effect.

3.3 Collection Of Data: -

There are two types of data collection method:

(1) Primary Data Collection Method.

(2) Secondary Data Collection Method.

For research study SECONDARY DATA Collection method is

used. The data is taken from:

Dalal Street Books,

Magazine,

Journal,

Website.

3.4 Sample Size: -

3-year data is collected as

I. Monthly Crude Oil Price

II.Monthly Sensex Value



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3.5 Limitation of the Study: -

As we study about only 3 years so only on basis of this 3years data

we cannot generalize about the whole.

Sensex does not have only impact of Crude Oil.

Time is limited.

3.6 Scope of the Study: -

Study can also be done on impact of Crude Oil on nifty.

Study of more than 3 years can also be done.



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Comparison between the Crude Oil Prices and SensexValue

Month Crude Oil Price Sensex Valve Correlation

Jan-07100.52 14,090.92

Feb-07108.08 12,938.09

Mar-07113.85 13,072.10

Apr-07 122.28 13,872.37May-07

122.52 14,544.46

Jun-07128.08 14,650.51

Jul-07138.12 15,550.99

Aug-07131.63 15,318.60

Sep-07144.05 17,291.10

Oct-07153.84 19,837.99

Nov-07171.38 19,363.19

Dec-07 168.05 20,286.99Jan-08

170.25 17,648.71

Feb-08175.34 17,578.72

Mar-08191.1 15,644.44

Apr-08204.24 17,287.31

May-08230.52 16,415.57

Jun-08247 13,461.60

Jul-08249.66 14,355.75

Aug-08 215.3 14,564.53Sep-08

187.06 12,860.43

Oct-08136.34 9,788.06

Nov-08101.25 9,092.72

Dec-0877.71 9,647.31



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Jan-0982.58 9,424.24

Feb-0978.83 8,891.61

Mar-0987.89 9,708.50

Apr-0994.55 11,403.25

May-09109.28 14,625.25

Jun-09129.99 14,493.84

Jul-09121.64 15,670.31

Aug-09134.69 15,666.64

Sep-09128.47 17,126.84

Oct-09139.21 15,896.28

Nov-09145.82 16,926.22

Dec-09140.86 17,464.81

0.494144694



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Interpretation:

The table and line chart shows the monthly crude oil prices with the Sensex Value. As

increase in Crude oil prices there is also increase in sensex value as you can see in the

chart. The table and line chart shows the monthly in crude oil prices with the Sensex Value.

In 2008 there is crude oil price is down and also sensex value down in this year. This

happen due to Global Recession.The table and line chart shows the monthly crude oil

prices with the Sensex Value. As increase in Crude oil prices there is decrease in sensex

value as you can see in the chart. Correlation value is approx 0.49 that means it is positive

and direct relationship. If the crude oil prices increase than sensex value also increase and

the crude oil prices decrease than sensex value also decrease.



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Conclusion

Relationship between crude oil and Sensex. There will be great combinations of

crude oil and stock market since major world economy are base on crude oil and

US dollars, if we take current example last 40 days crude oil has come down

approximately 22% and Sensex has shoot up around 23%.

We cant conclude that the crude oil price is the only variable which impacts the

stock market. There are many variables like inflation, FII FDI, political issues;

government monetary policies etc that are also Influence the stock market.

It is easy to understand that crude oil is directly link with inflations and crude oil

but relationship between crude oil and Sensex is not so easy.

Remember other than service sectors all most all the manufacturing sector is

directly associated with the price of the crude. When the price of this important

element increases it will push up the prices and thereby inflation. Excessive

inflation is of no good sign to economy and hence it slows down.

As increase in Crude oil prices there is also increase in sensex value as per chart. In

2008 there is Crude oil prices down in mostly every month and sensex value also

down in this year. This happen due to Global Recession.

As the world everywhere experiences recession (which means lower demands for

oil) in 2008 oil prices went down from $150 to $40 a barrel in a space of only 5

months oil exporting countries such as Russia were the some of the countries that

showed major economic downfall.

http://www.moneycontrol.com/sensex/bse/sensex-livehttp://www.moneycontrol.com/sensex/bse/sensex-livehttp://www.moneycontrol.com/sensex/bse/sensex-livehttp://www.moneycontrol.com/sensex/bse/sensex-live


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Bibliography

http://psychology.about.com/od/cindex/g/def_correlation.htm

http://www.socialresearchmethods.net/kb/statcorr.php

http://www.liveoilprices.co.uk/crude_oil/the_history_of_crude_oil.html

http://www.crnindia.com/commodity/crudeoil.html

http://en.wikipedia.org/wiki/BSE_SENSEX

http://www.mysmp.com/world-markets/bse-sensex.html

http://www.ncdex.com/crude oil price.html

http://www.surveysystem.com/correlation.htm

http://www.liveoilprices.co.uk/crude_oil/crude_oil_and_global_warming.html

http://www.liveoilprices.co.uk/crude_oil/global_crude_oil_discoveries.html

http://www.liveoilprices.co.uk/crude_oil/world_crude_oil_reserves.html

http://www.liveoilprices.co.uk/crude_oil/list_of_main_oil_producing_countries

.html

http://www.liveoilprices.co.uk/oil_trading/how_crude_oil_is_bought_and_sold.

html

http://www.socialresearchmethods.net/kb/statcorr.phphttp://www.liveoilprices.co.uk/crude_oil/the_history_of_crude_oil.htmlhttp://www.crnindia.com/commodity/crudeoil.htmlhttp://en.wikipedia.org/wiki/BSE_SENSEXhttp://www.mysmp.com/world-markets/bse-sensex.htmlhttp://www.ncdex.com/crudehttp://www.surveysystem.com/correlation.htmhttp://www.liveoilprices.co.uk/crude_oil/crude_oil_and_global_warming.htmlhttp://www.liveoilprices.co.uk/crude_oil/global_crude_oil_discoveries.htmlhttp://www.liveoilprices.co.uk/crude_oil/world_crude_oil_reserves.htmlhttp://www.liveoilprices.co.uk/crude_oil/list_of_main_oil_producing_countries.htmlhttp://www.liveoilprices.co.uk/crude_oil/list_of_main_oil_producing_countries.htmlhttp://www.liveoilprices.co.uk/oil_trading/how_crude_oil_is_bought_and_sold.htmlhttp://www.liveoilprices.co.uk/oil_trading/how_crude_oil_is_bought_and_sold.htmlhttp://www.liveoilprices.co.uk/oil_trading/how_crude_oil_is_bought_and_sold.htmlhttp://www.socialresearchmethods.net/kb/statcorr.phphttp://www.liveoilprices.co.uk/crude_oil/the_history_of_crude_oil.htmlhttp://www.crnindia.com/commodity/crudeoil.htmlhttp://en.wikipedia.org/wiki/BSE_SENSEXhttp://www.mysmp.com/world-markets/bse-sensex.htmlhttp://www.ncdex.com/crudehttp://www.surveysystem.com/correlation.htmhttp://www.liveoilprices.co.uk/crude_oil/crude_oil_and_global_warming.htmlhttp://www.liveoilprices.co.uk/crude_oil/global_crude_oil_discoveries.htmlhttp://www.liveoilprices.co.uk/crude_oil/world_crude_oil_reserves.htmlhttp://www.liveoilprices.co.uk/crude_oil/list_of_main_oil_producing_countries.htmlhttp://www.liveoilprices.co.uk/crude_oil/list_of_main_oil_producing_countries.htmlhttp://www.liveoilprices.co.uk/oil_trading/how_crude_oil_is_bought_and_sold.htmlhttp://www.liveoilprices.co.uk/oil_trading/how_crude_oil_is_bought_and_sold.html


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Crude Oil Prices and Sensex Value

Month Crude Oil Price Sensex Valve Correlation

Jan-07100.52 14,090.92Feb-07108.08 12,938.09

Mar-07113.85 13,072.10

Apr-07122.28 13,872.37

May-07122.52 14,544.46

Jun-07128.08 14,650.51

Jul-07138.12 15,550.99

Aug-07131.63 15,318.60

Sep-07144.05 17,291.10Oct-07153.84 19,837.99

Nov-07171.38 19,363.19

Dec-07168.05 20,286.99

Jan-08170.25 17,648.71

Feb-08175.34 17,578.72

Mar-08191.1 15,644.44

Apr-08204.24 17,287.31

May-08230.52 16,415.57

Jun-08247 13,461.60

Jul-08249.66 14,355.75

Aug-08215.3 14,564.53

Sep-08187.06 12,860.43

Oct-08136.34 9,788.06

Nov-08101.25 9,092.72

Dec-0877.71 9,647.31

Jan-09 82.58 9,424.24Feb-09

78.83 8,891.61

Mar-0987.89 9,708.50

Apr-0994.55 11,403.25

May-09109.28 14,625.25



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Jun-09129.99 14,493.84

Jul-09121.64 15,670.31

Aug-09134.69 15,666.64

Sep-09128.47 17,126.84

Oct-09139.21 15,896.28

Nov-09145.82 16,926.22

Dec-09140.86 17,464.81

0.494144694

Documents

Foram Crude Oil123