Experts are predicting crude oil to touch 150 USD , a barrel primarily due to sanctions imposed on Russia. However countries like China and India are exploring the option of buying crude oil at a discounted price from Russia. Many banks are unwilling to fund shipments from Russia. The current price of crude oil is at 120 USD approximately. With more sanctions on Russia is expected to be imposed by the month of August, this could result in a “crude shock”.
Logistics is a major cost factor in any manufacturing industry. A major increase in logistics cost will impact the manufacturing sector in a big way. Any investor who has invested in freight sensitive stocks will also be impacted negatively.
What Can Companies And Investors Do?
Option 1: Crude oil call option could be a good solution to tide over the “crude shock”.
An options contract is an agreement between two parties to facilitate a potential transaction on an underlying security at a preset price, referred to as the strike price, prior to or on the expiration date.
In an options contract the buyer has an option to either buy the contract at the present price on a later date or decide not to buy the contract. The cost applicable to the buyer for such a contract will be options premium plus brokerage and taxes.
Option 2. Buy a stock which produces crude oil. Oil India is one good example.
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Success of any business or investor is to understand or predict what is coming and be proactive.