How oil prices affect markets and investments

Oil prices are more than just a number at the pump – they’re a strong sign that spreads across the market, affecting everything from inflation, to company profits, to the clean energy transition.

In 2025, with Brent crude (a standard benchmark for oil price) moving between $60-$82 per barrel and prices changing due to global events, it’s more important than ever for investors to understand actions by OPEC+ (the Organisation of the Petroleum Exporting Countries) and how oil affects the market.

Why oil prices change

There are several factors which generally influence the price of oil:

• Oil prices are mostly driven by supply and demand: As a key part of the world economy, there are different factors that can influence oil prices. High prices may be as a result of global economic growth with more demand or a restriction of supply. Lower prices, on the other hand, could point to too much supply or shifting demand as part of the energy transition.
• Volatility driven by geopolitics: The eight OPEC+ countries often come together to coordinate on how much oil they will produce to control the price. But it’s rarely a simple matter. Oil prices surged to nearly $79 per barrel in June due to the Israel-Iran conflict but quickly fell back to around $67 after the ceasefire. When Russia invaded Ukraine in 2022, oil prices also surged as Russian oil and gas (a substitute for oil) were removed from the market. This reduced supply of oil and increased demand, pushing the price up in the short term.
• Supply pressures and seasonal demand: Despite weak global demand and rising inventories, OPEC+ reining in production and heightened hurricane risks in the US this season are so far keeping prices from falling further. Global trade, the increasing competitiveness of clean energy sources and economic conditions will continue to weigh on the price of oil.

Why oil prices matter

There are three key areas where oil prices may affect markets and economies:

• Inflation: If oil is expensive, it costs more to ship and make things. These costs can then be passed on to consumers, leading to higher prices and inflation.
• Interest rates: Central banks monitor oil-driven inflation closely. Persistent price increases may prompt rate hikes to contain inflation or keep rates higher for longer, which may have adverse effects on bond yields, stock values and currency markets. Falling prices on the other hand may ease pressure on monetary policy, which could help stocks and riskier bonds.
• Investment markets: Oil price volatility creates uncertainty, and uncertainty is generally not good for stock markets. However, different sectors will react differently from changes in oil prices. Oil and gas companies benefit from higher prices, but manufacturing and transportation companies generally do not. Companies involved in clean energy infrastructure might welcome higher oil prices as it makes clean energy more attractive, but consumer-led sectors like shopping, dining and travel are all likely to suffer from higher energy prices.

Oil prices are a major force in markets – influencing inflation, affecting banks and creating waves across sectors. In a world with fragile supply chains, global conflict and fast-moving energy changes, oil is very much a key player. But the good news is that investing in a range of asset types, spread across lots of different industries and companies (like our Growth funds), helps reduce risk. This approach also means that while we might notice fuel prices changing at the local petrol station, we don’t need to worry about adjusting our investment strategy based on what oil prices may or may not do in future.