Topic

FUNDAMENTALS OF OIL AND GAS

INDUSTRY IN PAKISTAN AND THEIR
IMPACT ON STOCK RETURNS

MBA Research Project/Thesis

Supervised by
Muhammad Ahmed

Presented by
Waqas Shaikh
Reg # 1535315
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1. Introduction
Oil and Gas industry has created dynamic
changes in recent years due to which it has
become essential factor concerning to stock
returns.
Macroeconomic factors, like, interest rates,
inflation, exchange rates & crude oil can be
analyzed with the oil prices and stock returns.
Exchange rate can play an important role as it is
tool to find out and consider the strength of any
countrys currency in form of domestic currency
Interest announced by State Bank of Pakistan or
by the Central bank of Pakistan that is for lending
or borrowing money between the banks and for
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consumers in different forms

1. Introduction
Inflation also plays in vital role in overall economy
and prices of commodity also increases and
decreases accordingly.
Hooker (2002), oil shocks participates generously
to core inflation in 1980s but then core measures
were less affected, it more focused on direct
share in a price index. Considerable inflation
increases in general when there is increase in
natural resources that almighty increases our cost
of production that affects respective industries.
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1. Introduction
Crude oil is also a driving factor that
affects the stock returns of oil
industry.
created a substantial part in the
Pakistans economy
a share of around 30% share in the
total energy supply mix
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1.1 Research Problem

In todays globalised world, countries are highly
depended on industries, especially oil and gas
industry.Respective fundamentals of oil industry
in global as well as regional markets are main
driving force for oil producing and importing
firms. Also, there has been an association among
stock prices of oil and gas industry, interest rates
and demand.Main purpose of the research is to
gauge the influence and impact of fundamental
changes on stock prices of Oil and Gas
companies.

Research Questions
What are the consequences of inflation on
oil prices?
What is the thrust of inflation on stock
returns of oil and gas industry?
What is the impact of interest rates on oil
prices?
What is the influence of interest rates on
stock market returns of oil industry?
What is the effect of exchange rates on oil
prices?
What is the impact of exchange 6rates on

1.2 Research Objectives

The objective of our study is to determine the
fundamentals of oil industry that have
impact on Oil prices and Stock returns of
the Oil price shocks for the period of ten
years, from January 2005 to February 2015,
and taking macroeconomic
factors( Inflation, Interest rate, Exchange
rates) for past ten yearsfrom January 2005
to February, 2015, with the help of
Econometric model
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1.3 Limitations
1. Owing to time span that is short, scope of the
research is being limited as we are taking under
consideration few companies and macroeconomic
factors.
2. Stock price returns also depend on various other
factors on firms level of operations and measuring
stock returns on basis of profitability should not be
considered wholly and solely.

1.4 Scope
The study will take into account the oil and gas
companies of Pakistan to identify the factors and
fundamental and their effect on oil companies
stock market. So in this research we will be able
to identify the factor which will help the laws
makers, oil and gas companies oil industry
analysts to understand market dynamics further.

1.5 Assumptions
The political conditions and economic indicators
will be assumed and kept constant during our
duration of the study

Collection of data is considered relevant and

authentic that is available from secondary
resources

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2. Literature Review

Donwaet. al (2015)
Gogineni (2010)
(Narayan and Narayan, 2010)
(Basheer et al., 2012)
Rabia&Adnan (2015)

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3. Research Methodology
Research Design
Philosophy: Positivist
Approach: Deductive
Research Choice: Mono Method (Quantitative)
Time Horizon: Cross Cross Sectional Data
Data: 2005 2015 (10 years observations on
daily basis) is obtained from Statistics and
Warehouse department of State Bank of Pakistan,
Pakistan Stock Exchange and other verifiable
resources.
Software Employed: SPSS
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3. Research Methodology
Procedure
The historical developments always play an
important role in the potential events, to know
about that, researcher studied and discussed the
available literature and models.
to analyze the data in this study, researcher has
applied Econometric model to forecast
fundamentals of oil and gas industry of Pakistan
and their impact on stock returns.
the results have been interpreted and discussed.

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3.1 Software Employed

The SPSS: to analyze the data

MS Excel for data setting.

MS Word for report writing.

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Hypothetical Framework
Interest
rates

Inflation

Exchange
rate

Stock
Returns
Oil
price
s

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4.1 Key Findings

CRUDE OIL
For interest rates, null hypothesis is
accepted
For inflation, null hypothesis is
accepted
For Exchange rates, null hypothesis
is rejected and alternative is
accepted
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4.1 Key Findings

STOCK RETURNS
For interest rates, null hypothesis is rejected and
alternative hypothesis is accepted
For inflation, null hypothesis is rejected and
alternative hypothesis is accepted
For Exchange rate, null hypothesis is rejected and
alternative hypothesis is accepted
For Crude Oil, null hypothesis is rejected and
alternative hypothesis is accepted
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5. Conclusion

The research was based on the fundamentals of oil and gas

industry and their impact on their stock returns

Identified that exchange rates have significant impact on

oil prices whereas interest rates and inflation do not have
significant impact on oil prices

The impact and influence of the fundamental factors on the

oil and gas companies have significant impact on stock
prices of seven companies in all.

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5.1 Future Research Direction

A study can be done company specific , like only
on one company and more factors can be taken
into account for companies like POL as in its stock
returns, two independent variables were not
having significant impact.
A study can also be carried on BYCO and SHELL
by increasing sample period and adding few
more underlying factors.

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 Thankyou

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