Impact of Oil Price Variations on Industries Across Major Global Markets

Abstract

This study explores the effects of oil price variations on 14 industries across six major markets: Canada, China, France, India, the United Kingdom, and the United States. The analysis is based on panel weekly data spanning from June 1998 to December 2020. The findings reveal that fluctuations in oil prices have a significant impact, particularly on the Oil and Gas and Mining industries, while the Food and Beverage industry appears to be the least affected. In more detail, the study indicates that the Oil and Gas and Mining sectors are highly sensitive to changes in oil prices, with price increases or decreases leading to notable shifts in these industries. This is expected given their direct reliance on oil as a primary input for production and operations. Conversely, the Food and Beverage industry shows a minimal response to oil price changes, likely due to its diversified input sources and the less direct role of oil in its production processes. Interestingly, the study also finds that in three of the six countries analyzed—Canada, France, and the U.K.—oil price variations have a negative effect on the Pharmaceutical and Biotechnology industries. This negative relationship may be attributed to the fact that these countries have government-funded healthcare systems. When oil prices rise, the increased costs can strain public finances, potentially leading to reduced funding or higher operational costs for healthcare and related sectors, including pharmaceuticals and biotechnology. This financial pressure could result in lower investment and slower growth within these industries. The implications of these findings are significant for portfolio managers and investors. Understanding which industries are most and least affected by oil price fluctuations allows for more informed decision-making and portfolio adjustments. For instance, in times of expected oil price volatility, investors might consider reducing exposure to highly impacted sectors like Oil and Gas and Mining, while potentially increasing investments in more resilient sectors such as Food and Beverage. Additionally, awareness of the negative impact on the Pharmaceutical and Biotechnology industries in specific countries can guide investors in managing risks associated with these sectors. Furthermore, the study's insights can help policymakers and industry leaders develop strategies to mitigate the adverse effects of oil price volatility. For industries heavily impacted by oil price changes, such as Oil and Gas and Mining, diversification of energy sources and investment in renewable energy technologies might be viable strategies to reduce dependency on oil. For the Pharmaceutical and Biotechnology sectors, particularly in countries with government-funded healthcare systems, strategic planning and budgeting can help cushion the effects of oil price fluctuations on public finances.