Correlation Between Oil and Equities Markets

May 7, 2009

oil-vs-stock-market

Oil prices have been trading in an unusually strong positive correlation with equities markets over the past few months on hopes that signs of an economic recovery could mean a boost for energy demand.

But with oil and product inventories swelling and little sign of demand improving in the United States and other big developed economies, analysts warn that the linkage may be hard to maintain, especially if U.S. motorists cut back on vacations this summer.

Comments

I think the market has to go on no matter up or down, but has to continued moving because investors make money when it goes down and the same when it goes up, and my feeling is that if oil goes up everything goes up, because if there is money to gain there is money to spend, so oil is going in the mid 70s the rich people owns oil, so they are pushing the market, the thing is that they are buying shares cheap and theyre making alot of money so markets has to be stable, because the money only change from one hand to another, the money is not lost it only change to other hands, so people are gaining confidence in the markett and invest to make money ore to recover from loses.

Posted by dariush | Report as abusive
 

I hope we can now dispense with the quaint notion that the price of oil is set in a tent. The price of Oil is set by demand resulting from industrial activity in the developed and developing world. It is economically naive to believe that cap ‘n trade or hybrids are going to change that relationship anytime soon. The purest measure of economic activity is the price of OIL. I welcome the return of energy and with energy stocks now contributing more to the S&P than financial, a rising tide will lift all boats.

Posted by JB | Report as abusive
 

Is not the recent increase in the cost of oil more to do with the reduction in the value of the US Dollar against a basket of currencies than a simple link between the oil price and equities? Each percentage point reduction in the US Dollar appears broadly equivalent to $4 increase in the cost of oil. The reduction in the value of the US Dollar against other currencies appears more to do with the loss of safe haven status of the US Dollar due to equities doing better so investors are moving out of the US Dollar into riskier investments. I would expect the US Dollar to lose value as the economic situation improves, but the journey is likely to be very bumpy. I personally would be very cautious about investing in oil unless you have very deep pockets, as there may be further surprises in store that result in the oil price going down to around $45 a barrel or lower before resuming an upward trend.

Posted by Mike | Report as abusive
 

The markets are consolidating, and investors are more confident so thats why investing in long terms is getting safer and if oil goes up there will be money to spend, so Mike sorry but your coment on oil going $45, is not my feeling. And what abaout coffee well offer is low and demend is up, I would invest in coffee, because stocks are getting lower everyday and producing countries have problems with weather changes and has affect the production and thats why prices are getting better in the market. Lets hope for the people to make allot of money so there will be money to invest and people are going to get jobs.

Posted by Dariush | Report as abusive
 

if the equity market is up, the oil prices will be up automatically. This weekend the oil prices is weak in the commodities market, because the US economic is still the same. it doesn’t change yet. the isues from the Fed that the US economic will more better and the jobless will be last this month, it isnot enough to make a different and any sense to change the US economic.

Posted by ricky | Report as abusive
 

We are not at the economic threshold of return yet where we can handle higher prices in energies. If energies run up the economy will be pushed deeper into recession, perhaps even depression. The energy bubble caused a chain reaction of dissent in over-all financial stability. If energies…specifically oil began moving up at this time we will face economic times like we have not experienced for 70 years.

Posted by Alan | Report as abusive
 

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