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Oil price rise starting to worry equities?

February 23, 2012

The correlation between oil prices and equities has fallen to the lowest level since April last year as the Iranian nuclear row and related oil price jump have swooped back onto the radar for global investors.

Until recently equities and oil have tended to move in the direction. Oil price moves have been primarily demand driven  - euro zone credit woes easing and better economic data from the U.S. have been good for oil and equity prices.

If oil prices start to rise due to worries about supply rather than improving growth expect equities to suffer. As the chart below shows the correlation between the two assets went negative last year as investors worried how much the spreading Arab spring may hit oil supply.

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