Oil Remains Highly Correlated to the S&P 500 8 comments
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On a rolling 200-day basis, oil is now more correlated to the S&P than any other time in the last twenty years. Below we picture the correlation of oil versus the S&P on both a 50-day and a 200-day basis. As shown, the correlation has been rising since mid-2008 and is at or near the high for both time periods. (1987 - 2007 for 50-day correlation is not pictured, previously the high was .46, currently it is .66).
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This article has 8 comments:
In this case, short oil in the short term, 'cos sure as anything, the market is now poised for a big fall.
Americans consumed more oil in the peak economy years than they do now. Oil consumption went down. Oil is inelastic to a degree, but it is NOT perfectly inelastic.
There are tons of problems with future and peak oil projections. They don't take into account recessions, or price increases. If the price of oil goes up, people will start to consume less of it and alternatives emerge. If oil is 8.00 at the pump, people will start driving less, using public transportation more, driving a more fuel efficent auto, carpooling, buying cars that run on natural gas etc. etc. etc.
A lot of the oil and peak oil projections don't properly take into account that people do respond to price changes ( these past 2 years are proof of that) and also recessions.
Gas prices are lower than they were 1-2 years ago, but we are consuming still less gas. Why? Recession. A healthy economy uses more oil than an unhealthy one.
You're pretty much on target with your assesment of the impact of a weak economy on oil prices, but one thing that you're not addressing is overall global demand. A week, or so ago, there was a short news piece on Bloomberg by the IEA, or some other international monitoring body that showed that for the first time since records were kept, emerging economies consumed more oil than developed ones.
Granted, those economies will ebb and flow, as well, but a long term trend is in place, imo, and ignoring it may prove harmful to one's investing "health".
On Jul 03 09:42 AM $ John Galt wrote:
> A healthy economy uses more oil than an economy in the dumps.
>
> Americans consumed more oil in the peak economy years than they do
> now. Oil consumption went down. Oil is inelastic to a degree, but
> it is NOT perfectly inelastic.
>
> There are tons of problems with future and peak oil projections.
> They don't take into account recessions, or price increases. If the
> price of oil goes up, people will start to consume less of it and
> alternatives emerge. If oil is 8.00 at the pump, people will start
> driving less, using public transportation more, driving a more fuel
> efficent auto, carpooling, buying cars that run on natural gas etc.
> etc. etc.
>
> A lot of the oil and peak oil projections don't properly take into
> account that people do respond to price changes ( these past 2 years
> are proof of that) and also recessions.
>
> Gas prices are lower than they were 1-2 years ago, but we are consuming
> still less gas. Why? Recession. A healthy economy uses more oil than
> an unhealthy one.
www.eia.doe.gov/emeu/i...
Not only did oil consumption drop, oil consumption dropped when prices were down.
How could that be? Doesn't the world only have a fixed supply of oil? Didn't Goldman Sachs predict 200 dollar oil when it was at 147? Now why on earth would people use less oil when the prices was cheaper and why would they use less oil if they had to?
China is already the world's largest consumer of energy ( not America), for them to consume more oil in the future as their economy grows is very likely.
"LONDON (Reuters) - PVM Oil Futures Limited said on Friday Steve Perkins, a senior broker based at the firm's London office, was responsible for unauthorized trades earlier this week which landed the firm with a loss of nearly $10 million.
The London-based brokerage said Perkins had taken the positions in Brent crude futures early on Tuesday.
The heavy buying during the Asian trading day when volumes tend to be lower caused global crude prices to spike to their highest level this year. Traders and analysts initially struggled to explain the price move.
Brent was trading at about $66 a barrel on Friday, down from the high of $73.50 struck on Tuesday.
After discovering the trades, PVM said in a statement on Thursday it had closed them out "in an orderly fashion," resulting in losses approaching $10 million.
It said its brokers were not authorized to take positions in the crude oil markets. Oil brokers generally help to match up trading counter-parties such as banks and hedge funds rather than dealing themselves.
PVM confirmed Perkins was a Brent crude futures broker, but declined to discuss his possible motivation for the unauthorized trades.
The brokerage said on Thursday PVM was conducting a full investigation and it had informed the Financial Services Authority (FSA), Britain's regulatory body, as well as the InterContinental Exchange (ICE), where the majority of Brent futures trade takes place.
PVM is the world's largest independent broker, trading more than 100 million barrels of over-the-counter and oil futures a day on average. The company said it had met all margin calls caused by the unauthorized trades and was conducting business as usual."
www.reuters.com/articl...
There were more, so just follow the link.