Wall Street and Speculation

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  Wall Street is the financial capital of America and the most developed financial market of the world. Investors on Wall Street speculate the future prices of oil and the direction of the economy. This speculation is what causes sharp changes in gas prices as they sell or buy vast quantities of oil in mere minutes.
  
  

How Do Wall Street Investors Make Their Decisions?

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  Investors gather data from a variety of sources when they make their predictions as to whether or not the price of oil will be increasing. The most important of these sources is the Federal Reserve, which gathers important data on the general health of the economy. Whenever the Federal Reserve makes a decision or a public statement, the stock market either jumps up a few points or falls down a few points, usually within a few hours. When the stock market changes direction, so does the direction of crude oil. When the stock market goes down, the price of crude oil goes down. When the stock market goes up, the price of crude oil goes up as well.
  
  

Wall Street Language, Oil Prices and Your Portfolio

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  If you are a day trader, this information will help you time when to buy or sell stocks. When you speak with other investors or go to investment club meetings, it is important to know the language of Wall Street. It will also help you if you watch financial TV shows or read the Wall Street Journal. Investors often talk about going "long" on a stock or commodity. That means they predict it will rise in price. They also talk about going "short" on a stock or commodity, which means they speculate it will go down in price. On the trading floor, you can hear investors shouting "long" or "short" when discussing crude oil. When crude prices are going up or the Federal Reserve is predicting positive news for the economy, most stocks are on the upswing. Investors will go "long" on oil, and you should as well. When the Federal Reserve is predicting negative news for the economy, most stocks will be in retreat. This will cause speculators to be "short" on oil, and prices will fall.
  
  

What Companies Respond to Crude Prices?

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  A common question is "which stocks will go up or down the most in relation to crude prices?" The answer is crude-related industries that involve extensive transport. This usually means companies that make goods as opposed to services. When a company has to ship computers or machines around the world, they use lots of crude oil to do so. If the price of crude oil goes up, it makes it harder for a company to make a final profit because its cost of doing business has gone up.
  
  

Who is Immune to Crude Oil Prices?

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  Prior to the most recent recession, people believed companies that were involved in services such as banking or real estate were not as directly prone to falls in stock price due to market adjustments in crude oil. The truth that investors have learned is that all companies, even those in services, can be affected by a contraction in the price of crude oil because businesses will not expand if they believe the general economy is going into a period of uncertainty. If businesses do not expand, the employees of these businesses will not purchase financial services from banks or homes in the real estate market. Thus, everybody is affected by crude oil prices.
  
  

It Depends on Where You Fit Into the Situation

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  As an investor, you want the price of crude oil to be generally on the upswing if you are predicting stocks will go up. As a corporate executive, you want the price of oil to be low enough to move your product to the market. As an oil engineer, you want the price to be high so that you can sell your oil in the commodities market for a good price. As a citizen, you want prices low so that you can fill your car with gas in an affordable way. It depends on where you fit into the situation. In general, investing is a risky enterprise and should be done only after you have properly studied the economy, the company and the industry in which you are considering purchasing a stock.