Potential Risks to Consumer and Industrial Stocks from Oil Supply Shock

Investing.com — Consumer-oriented and industrial stocks are most at risk from a potential oil supply shock, according to Barclays strategists.

While the likelihood of significant supply disruption is low, strategists believe investors should “remain on guard” as rising oil prices could materially impact equity markets, particularly sectors linked to consumer spending and industrials.

The bank's commodities team highlighted risks stemming from geopolitical tensions, especially around Iranian oil infrastructure. Although Barclays assigns a low probability to significant disruptions in Iran's supply, such a shock could push oil prices at least $15 higher per barrel, marking a potential 3.5-sigma event that would exceed the oil price shock triggered by Russia's invasion of Ukraine in 2022.

Such a scenario could be “of material consequence to equities as their correlation with oil prices recently turned positive,” noted Barclays’s team.

Strategists also distinguished between supply-driven and demand-driven oil price spikes, emphasizing the current situation aligns more with a supply shock. Supply-driven increases typically burden consumer-oriented sectors due to higher gas and energy costs, which reduce discretionary spending.

“Higher oil prices are felt by the consumer via gas and energy costs, leading to lower spending in other areas,” the note states.

In terms of sector impact, Barclays analyzed equity behavior during past oil supply shocks, determining that Energy, Materials, and Utilities “are the clear winners,” while losers tend not to be stocks with substantial oil cost inputs. Rather, consumer-oriented sectors like Discretionary, Communication Services, Tech, and subcategories like Consumer Services, Durables, Retail, and Telecom are at the highest risk.

“We believe this aligns with the viewpoint that higher energy/gas costs lead consumers to curtail spending in other areas,” strategists concluded.

Thus, companies most impacted by rising oil and commodity prices are generally those reliant on consumer spending, rather than those with high direct costs associated with oil and commodities.