Oil and stocks locked in downward spiral

Gas flares burn from pipes aboard an offshore oil platform in the Persian Gulf's Salman Oil Field, operated by the National Iranian Offshore Oil Co., near Lavan island, Iran, on Thursday, Jan. 5. 2017. Photographer: Ali Mohammadi/Bloomberg
Gas flares burn from pipes aboard an offshore oil platform in the Persian Gulf's Salman Oil Field, operated by the National Iranian Offshore Oil Co., near Lavan island, Iran, on Thursday, Jan. 5. 2017. Photographer: Ali Mohammadi/Bloomberg

For all the talk of OPEC supply cuts and surging shale production, oil’s biggest problem is panic over the economy — and the correlations show it.

During the last oil price crash in 2014, the S&P 500 Index and Brent crude moved in opposite directions. Oil’s fall failed to prove much of a drag on U.S. equities and vice-versa, as represented by a strong negative correlation coefficient of .65 between the two assets.

That’s changed during the commodity’s current collapse. Brent and the S&P are moving in tandem: The correlation has turned positive and strengthened to a robust .75.

“There’s nothing OPEC can do about that predicament,” Sam Margolin, a Wolfe Research LLC analyst, wrote in a note Thursday. “The solution lies only in market confidence around global growth, the U.S.-China trade war, and the pace of Fed rate hikes.”

While Wolfe sees “constructive” signs for 2019, they’ll only translate to oil “whenever they translate across broader sentiment.”

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