Key Points:
Are Energy and U.S. Stocks Really Negatively Correlated?
The Oil Supply Going to Increase while Demand Tends fall, how oil price and stock market will perform?
Bloomberg reportsOil Stocks Negatively Correlated to Market First Time Since 2001.From the data of past 3 month and half year, Oil and gas equities are defying the broader stock market in a way investors haven’t seen in two decades.
The energy index has climbed 39% this year while the broader index has fallen 6% and the S&P 500 Information Technology Index is down 10%.
The correlation between the S&P 500 Energy Index and the broader S&P 500 has gone negative for the first time since 2001, fueled by a combination of rising oil prices and a selloff in the tech sector.
Analysts say the divergence has historically preceded recessions.
Are Energy and U.S. Stocks Really Negatively Correlated?
Source From MISH TALK
But the above chart suggests that only from 2014 to 2019 energy mostly had an inverse relationship with the S&P 500.
Since the pandemic happened in 2020, the oil market and the stock market have not shown a negative correlation.
The recent conflict between Russia and Ukraine has triggered concerns about the tightening of energy supply, then the oil prices exceeding $130 a barrel the highest.
The latest news. the U.S. is set to announce the third, possibly largest, release of oil reserves since November 2021. In last November, the Biden administration announced a partnership with other countries to release 50 million barrels of oil from strategic reserves.
The Crude Oil Supply Going to Increase
After the outbreak of the Ukraine war, the U.S. and 30 other countries agreed to release an additional 60 million barrels of oil reserves, half of which came from the United States.
According to the U.S. Department of Energy, the field had more than 568 million barrels of oil in reserves as of March 25.
The exact release time hasn't been finalized, and it's likely to take a few months.
A Biden administration is considering another release of the Strategic Petroleum Reserve (SPR), possibly more than the 30 million barrels released earlier this month, one source said.
$Light Crude Oil - main 2205(CLmain)$ prices fell 5% on Wednesday to near $105 a barrel, up from about $60 a year ago.
The Crude Oil Demand Expected to Fall
The newest supply will easing the shortage of Oil, while the demind of oil seems not too positive.
In a report released last week, J.P. Morgan pointed to falling population movements in Eurasia and the U.S. as the clearest sign yet of lower oil demand.
JPMorgan cut its forecast for Eurasia’s daily oil demand in 2022 by 270,000 barrels per day. Eurasia's demand for jet fuel will be 130,000 barrels per day less than previously estimated, as about half of Russia's civilian aircraft will be grounded due to airspace bans and parts shortages.
JPMorgan also cut European oil demand by an average of 160,000 barrels a day in 2022 due to sensitivity to high prices and lower expectations for economic growth in the region.
What's the Next Trend for Oil Prices and The Stock Market?
Earlier, many institutions predicted that Brent oil$Brent Last Day Financial - main 2206(BZmain)$ price may exceed 150 US dollars, refreshing the historical high price of 146 US dollars on July 3, 2008. How will the international oil price trend change in the future?
Recently, Goldman Sachs lowered the target price of Brent crude oil in the second half of 2022 to $120 from the previous $135, maintaining the target price of Brent at $135, and the target price in 2023 was revised to $110. But be aware that this price is still quite high.
Regarding the stock market, Stifel Nicolaus analyst James Hawkins said. “If energy prices fall sharply, we could be talking about a recession-type scenario, in which case the S&P 500 could also fall sharply, so the correlation would move into positive territory again.”
Question For You:
1. Do you worry about the recession?
2. Do you still hold oil ETF or related stocks?
$Light Crude Oil - main 2205(CLmain)$ $E-mini Crude Oil - main 2205(QMmain)$
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