As oil prices rise, can Tesla stock strengthen?
14 / 03 / 22
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Federal Reserve Chairman Jerome Powell addressed the US House of Representatives Committee on Financial Services, and after a week of uncertainty in the financial markets, Powell's comments helped allay some of the concerns of investors.
Prior to the conflict in Eastern Europe, many expected the Fed to raise rates during its meeting this month to bring inflation under control. However, Powell said yesterday that he is inclined to support the idea of raising interest rates by 25 basis points.
The market reaction was positive. After Tuesday's decline, Wall Street ended yesterday's trading session well higher, with all three major indexes rebounding from Tuesday: the Nasdaq Composite, Dow Jones and S&P 500 ended the session up 1.62%, 1.79% and 1.86 % respectively.
Meanwhile, oil prices continue to rise.
The price of Brent oil, which was clearly not satisfied with breaking through the mark of $110 per barrel, rose above the level of $120 per barrel this morning (for the first time since April 2012).
This steady increase in oil prices is causing concern in the market due to the high level of global inflation.
High oil prices increase the costs of businesses, which in turn forces them to raise prices for their products. This has also played a role in the recent uncertainty in the financial markets, especially in the stock market.
This week, the S&P 500 index remained practically unchanged: the weekly gain of the index was only 0.04%. However, there are several companies in the index that this week, despite the uncertainty and unrest, showed good results. These companies are Tesla and Chevron.
Two very different companies that represent two different perspectives on how higher oil prices affect our energy consumption.
On the one hand, Tesla is undoubtedly the current king of electric vehicles. While the S&P 500 was largely flat this week, Tesla shares are up 8.7%.
The argument could be made that the higher the price of oil and other fossil fuels, the more attractive electric vehicles will become for consumers and the more investment we will see in clean energy sources. In other words, high oil prices could accelerate the transition to cleaner energy sources. Is it so?
While high oil prices may spur demand for electric vehicles, which companies like Tesla will benefit from, they also lead to increased investment in oil. When oil prices are high, oil production can be more profitable, which is why oil companies try to increase their drilling and production rates.
This has happened before and more than once: there is a boom in the oil market, its production increases, and then, when supply catches up with demand, price growth begins to slow down.
And that's why oil producers like Chevron, whose share price has risen 9.8% this week, are also likely to benefit from the current conditions.
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