As Oil Surges, Does Tesla Stand to Benefit?
Yesterday, Federal Reserve Chair Jerome Powell spoke to the US House of Representatives Financial Services Committee and, during a week in which uncertainty has gripped the financial markets, Powell’s comments helped calm some investor concerns.
Prior to the outbreak of conflict in eastern Europe, many had expected the Fed to raise rates aggressively at their policy meeting this month, in an attempt to rein in inflation. However, in yesterday’s speech, Powell seemingly poured cold water on this idea, stating that he was inclined to support a 25 basis point hike in interest rates.
The market’s response was positive. Having closed lower on Tuesday, Wall Street ended yesterday resoundingly higher, with all three main benchmark indices recovering Tuesday’s losses. The Nasdaq Composite, Dow Jones and S&P 500 all closed the session with gains of 1.62%, 1.79% and 1.86% respectively.
Meanwhile, oil prices continue to surge higher.
Brent crude, which was apparently not satisfied with breaking above $110 a barrel yesterday, rose above the level of $120 a barrel this morning for the first time since April 2012.
This relentless rise in oil prices is a concern for global inflation, which is currently running high.
High oil prices increase input costs for businesses which in turn forces them to raise prices for consumers. This, amongst other things, has played its part in the ongoing uncertainty we have witnessed in the financial markets recently, particularly in the equities market.
This week, the S&P 500 has been pretty much flat, with yesterday’s closing price taking the index’s weekly gains to 0.04%. However, within the index there are a handful of companies which have performed well this week, despite the uncertainty and turmoil. Two such companies are Tesla and Chevron.
Two very different companies which represent two different ways of looking at how higher oil prices will affect our energy consumption.
On one side, Tesla, undoubtedly the current king of electric vehicle manufacturing. Whilst the S&P 500 has been flat this week, Tesla shares have gained 8.7%.
There is an argument to be made that, the higher oil prices and other fossil fuels become, the more appealing electric vehicles will become to consumers and the more investment we will see funnelled into cleaner energy sources. In other words, high oil prices could see our transition to cleaner energy sources move faster. Is this likely?
Whilst high oil prices may spur an increase in demand for electric vehicles, which companies such as Tesla would benefit from, it also increases investment in oil. When oil prices are high, there are more profits to be made from producing oil and, therefore, oil companies tend to increase drilling and production.
In history, this has happened time and time again. The oil market booms, production increases which then, eventually, suppresses price as supply catches up with demand.
And this is why oil producers such as Chevron, whose share price has risen 9.8% this week, are also likely to do well in the current climate.
Depicted: Admirals MetaTrader 5 – Tesla Daily Chart. Date Range: 26 October 2020 – 2 March 2022. Date Captured: 3 March 2022. Past performance is not a reliable indicator of future results.
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