Oil prices and their effects on financial markets represent a significant economic topic that frequently appears in IELTS Writing Task 2 questions. Similar to how climate change affects global food security, this theme tests candidates’ ability to analyze cause-and-effect relationships in global economics.
Based on recent IELTS exam trends, here’s a relevant task 2 question:
Some people believe that rising oil prices have a negative impact on stock markets and the global economy. To what extent do you agree or disagree with this statement? Give reasons for your answer and include relevant examples from your knowledge or experience.
Essay Analysis
This question requires candidates to:
- Take a clear position on the relationship between oil prices and stock markets
- Provide specific examples and evidence
- Demonstrate understanding of economic concepts
- Present a well-structured argument
Rising oil prices affecting global stock market trends
Band 8.0 Sample Essay
The correlation between oil prices and stock market performance has long been a subject of economic discourse. While I largely agree that surging oil prices typically exert downward pressure on stock markets and economic growth, the relationship is more nuanced than a simple negative correlation.
Rising oil prices predominantly affect stock markets through multiple channels. Firstly, higher fuel costs directly impact company operating expenses, particularly in transportation and manufacturing sectors, leading to reduced profit margins and subsequently lower stock valuations. For instance, when oil prices reached $147 per barrel in 2008, major airlines reported substantial losses, causing their stock prices to plummet. Additionally, increased energy costs often trigger inflationary pressures, prompting central banks to raise interest rates, which generally disadvantages equity markets.
However, the impact varies significantly across different market sectors. While most industries suffer from elevated oil prices, energy sector stocks typically benefit, as demonstrated by the robust performance of oil companies during price surges. Furthermore, some economies, particularly oil-exporting nations like Saudi Arabia and Russia, may experience economic growth during periods of high oil prices, leading to stronger performance in their domestic stock markets.
In my view, the overall negative effect on stock markets is substantial but not universal. The severity depends on various factors, including a country’s energy dependency, economic structure, and monetary policy response. Modern economies have also developed better mechanisms to absorb oil price shocks compared to previous decades.
Band 6.5 Sample Essay
I agree that increasing oil prices have negative effects on stock markets and the global economy. This can be seen in many ways in different countries and markets.
When oil prices go up, companies have to spend more money on fuel and transportation. This means they make less profit and their stock prices go down. For example, when oil prices are high, airlines have to charge more for tickets or lose money. This makes people buy fewer tickets and airline stocks become cheaper.
Also, high oil prices make everything more expensive because transportation costs more. When things become more expensive, people buy less and companies make less money. This makes their stocks worth less money too. In many countries, when oil prices go up, the stock market goes down quickly.
However, some companies do better when oil prices are high. Oil companies make more money and their stocks go up. But there are more companies that lose money than make money when oil prices are high, so the overall effect on stock markets is bad.
Key Vocabulary
- correlation (n) /ˌkɒrəˈleɪʃn/ – mutual relationship between things
- downward pressure (n) /ˈdaʊnwəd ˈpreʃə/ – force causing decrease
- inflationary pressures (n) /ɪnˈfleɪʃənəri ˈpreʃəz/ – factors causing inflation
- plummet (v) /ˈplʌmɪt/ – fall or drop rapidly
- robust (adj) /rəˈbʌst/ – strong and healthy
- volatility (n) /ˌvɒləˈtɪləti/ – tendency to change rapidly
For practice, try writing your own essay addressing this topic and share it in the comments section. Consider exploring how does climate change impact global food security as another complex economic relationship affecting global markets.
