The Impact Of The Oil Prices On The Stock Return Of Alternative Energy Companies

1881 words - 8 pages

Alternative Energy Companies PAGE 1
The impact of the oil prices on the stock return of alternative energy companiesIt is generally said that surge in oil price and the broad market always have an important and positive effect on stock returns for alternative energy companies because alternative energy stocks are closely connected to fluctuation in the oil price. The alternative energy sector is considerably more uncertain than the broad market but it is also a fact that this is one of the sectors which always offer higher returns. The continuous rise in the oil price for past 10 years has provide an opportunity to alternative energy stocks to gain ground in capital markets all over the world. According to Azelton and fellows (2009), as oil price is considered the major force for energy companies, it can be even more vital force stock market return for alternative energy companies. "This may appear counterintuitive, but the future profitability of alternative energy firms depends on high energy prices because many alternatives (like solar power and fuel cells) have higher costs per unit of energy produced." (Azelton 2009) Because of continuous surge in the oil price during the past over 10 years and public consciousness about environmental issues has created a great interest in the development of alternative energy technologies.The period between 2001 and 2010 saw a dramatic increase in the price of light sweet crude which become a cause of concern for both consumers and producers of oil dependent economies. The prediction for growing global demand and declining supply alarms combined with volatile political situation in oil producing countries have become causes for the sharp rise in not only light sweet crude, but other energy commodities, including natural gas. Experts are of the view that the popular uprising in the Arab world after toppling of president Hosni Mubarak's government in Egypt and president Zainul Abedin's government in Tunisia will have a lasting impact on oil price. It is obvious that these events in the Arab world would have an impact on the oil price and in turn can be beneficial for alternative energy stocks.The chain of events in the Arab world highlight the uncertainty of energy markets to aspects other than just supply and demand and the significance of being capable of separating the main energy supplies from price shocks in the coming years. According to US Energy Information Administration (2010), the continuous surge in oil price indicates that political issues will have a great influence on the conventional production in the future oil market. "The high oil price case depicts a future world oil market in which conventional production is restricted by political decisions and economic access to resources: use of quotas fiscal regimes, and various degrees of access restrictions by the major producing countries decrease their oil production, and consuming countries turn to high-cost unconventional liquids production to...

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