The intention of this study is oil as one of the most important economic resources in world’s economy today. Fluctuations and shocks in oil prices have been studied intensively by many leading economists and several theories in economics point to the impact of oil price changes in world economies. The context of oil is even more important in the Saudi Arabian economy as it is has one of the biggest reserves of oil (one-fifth of world’s total) and is the second largest producer (behind Russia) of oil in the world. Saudi Arabia has proven oil reserves of 264.52 billion barrels of oil and was only recently surpassed by Venezuela who claimed their oil reserves had risen to 269.5 billion barrels of oil. In terms of oil production, Saudi Arabia has a quota allocation of just over 30% of production among Organisation of the Petroleum Exporting Countries (OPEC) countries. The Saudi Arabian oil production in 2010 was 9.1 million barrels per day which accounted for 13% of world’s total oil production. Oil is also a major driver of economic activity in Saudi Arabia. Oil related activities accounted for 47% of the GDP in 2010, and petroleum products exports amounted to $193 billion and accounted for 84% (by value) of total exports in Saudi Arabia. Therefore, oil prices play an important role in the Saudi Arabian economy. However, from the perspective of an investor or an enterprise in Saudi Arabian market, it is also important to know whether oil prices have a major role to play in stock prices of non-oil sector companies too.
If there is a high positive correlation between oil prices and non-oil sector stocks, an investor can used these stocks a hedge on their investments in oil. The outcome of this study could therefore be very useful for investors and enterprises already present or planning to enter the Saudi Arabian market. II. Literature Review Stock markets are largely dependent on economic activity in the country. In Saudi Arabia, as oil is a major component of the economy, stocks in Saudi Arabia are expected to indirectly depend largely on oil price movements. The influence of oil is however not limited to Saudi Arabia or other OPEC countries alone. Oil supply and price shocks have been a field of study for many economists globally. Therefore, a lot of research has been previously done on understanding the effect of oil prices on stocks. Where some studies have focussed on impact of oil price shocks on the stock market others have focussed on the general impact of oil prices on stocks. Most of these studies are focussed on the US market and there are only a few studies look into this aspect in Saudi Arabia. Because detailed study of oil shocks is out of scope of the current research, the literature review will focus only on studies that have been done on regular influence of oil prices on stock markets. Several studies have been done to understand the impact of oil prices on stock markets. Some of the notable ones among these are Sauter & Awerbuch (2003), Sari and Soytas (2006),
This research answers whether the stock and oil prices move together, it does not necessarily indicate whether oil prices indeed influence the stock prices. Thus the research will try to answer the following question: Is there a significant influence of oil prices on non-oil sector stock prices in Saudi Arabia? …
Many researchers have studied the impact of changes in oil prices on other stocks in order to provide investors an idea of where to invest and avail the maximum returns. Sauter and Awerbuch assimilated the findings of all major papers before 2002 on the relationship of oil prices with economic activity and stock prices.
The key assumptions in the study are: 1)The stocks chosen for analysis are representative of the sectors as they account for most market capitalisation in each sector; 2) By studying the causality relationship between oil prices and stock prices, we can reliably conclude on the influence of oil prices on stocks; 3) The impact of oil prices on stock prices is a constant phenomenon and not a “one-time” effect or a switch-on/switch off effect.
Therefore, for developing comprehensive study on Saudi Stock Market various aspects have been explored with evaluation of events in the market relative to events in world. Upon analysis, it was explored that world oil prices have direct impact on the TASI while internal country strength resists the impact of Asian crises on market.
Saudi Aramco through its management of 98% of the countries oil resources (Jaffe and Elass 2007) has had a significant impact on the Saudi Arabian Society. Saudi Aramco has had a history of improving the lives of Saudis whose livelihood in the past were dependent mainly on agriculture, making oil a very important commodity in the Saudi Arabian economy.
Literature Review 11 IV. Research Methodology 19 VII. Results and analysis 22 VIII. Conclusion 24 References 25 Appendix 1: Tadawul stocks and sectors distribution 27 Appendix 2: Stocks to be used for Analysis 28 Abstract This research analyses the degree to which oil prices influence non-oil sector stocks in Saudi Arabia.
In such an environment, being complacent or relying on one decisive strategy can lead to failure for even well established and strategically sound organizations. SKA-ARABIA Oil Company has carved out a place for itself in the world’s fuel, aviation and logistics market by providing crucial services in unstable and often dangerous environments of Iraq and Afghanistan.
Saudi Arabia is one of largest nations in the world with an area 870,000 sq mi. It is located in Western Asia, and it is the 2nd largest Arab nations following Algeria. The population of the nation is estimated to be 29 million and a majority of them are young people.
that America in comparison to other global states maintains high demand for oil due to its diverse economical facilities that depend on the commodity (Bruce, 2007). These entail transport and industrial besides other domestic purposes that heavily rely on oil or petroleum
Under nutrition, as well as chronic hunger, mainly arises from widespread poverty. Individuals who are poor cannot afford to buy food. Hungry households use more than half of their income to purchase the
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