Do Oil Prices Influence Non-Oil Sector Stocks in Saudi Arabia - Research Paper Example

The research will also investigate the role of the country’s oil dependence on the stock market in Saudi Arabia too as it has been previously confirmed by research. Besides, the research is also going to confirm whether the dependence of the Saudi Arabian economy on oil is much higher than in the US, as it has been established before that contrary to the finding of this report for US, a higher correlation is always expected between oil prices and stocks in Saudi Arabia. This report includes 8 main sections including the Introduction, Literature review, Research methodology, Findings and Conclusions.

The introduction provides a background and context for the research done, as well as describing the scope and objectives of the report, the achievements of previous studies and an overview of the entire research briefly explaining the contents in other sections. In the Literature review the existing studies in this field are discussed. The research methodology and findings section describe the method of data collection, as well as a detailed analysis of the results and how they were obtained.

The Conclusion summarises the issues discussed in the research, as well as the achievements. This paper also discusses the statistical data collected and evaluates the research compared to existing work and set the direction for future work in this field. I. Introduction Oil is one of the most important economic resources in world’s economy today. The context of oil has been found to be 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.

The government of Saudi Arabia has been encouraging private sector participation and growth in an effort to reduce the kingdom's over-dependence on oil, while increasing opportunities for employment within the citizenry. This research will aim to investigate whether high oil prices, high volatility in oil prices, and oil price shocks lead to reduced economic activity and lower stock returns in Saudi Arabia as it has been confirmed previously. There is a limited amount of existing research on the influence of oil prices on non-oil sector stocks in Saudi Arabia.

The available research does not indicate whether oil prices indeed influences the stock prices or not. From enterprises’ point of view, as a large part of Saudi Arabian economy is controlled by exports, especially oil exports, the effect on oil price will be investigated to determine whether it makes an indirect impact on businesses in Saudi Arabia. Many leading economists and several theories in economics point to the impact of oil price changes in world economies have studied fluctuations and shocks in oil prices intensively.

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 (OPEC, 2011) 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