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Is Oil’s Rise Purely Based on Supply Deficits?


Mar. 22 2019, Published 9:58 a.m. ET

US equity indexes

On March 14–21, US equity indexes had the following correlations with US crude oil May futures:

  • the Dow Jones Industrial Average (DIA): -74.8%
  • the S&P 500 (SPY): -68.1%
  • the S&P Mid-Cap 400 (IVOO): -48.5%

These three equity indexes have exposure of ~5.4%, ~5.4%, and 3.7% to the energy sector, respectively. The equity indexes rose 1%, 1.7%, and 0.9%, respectively, in the trailing week. US crude oil May futures rose 1.8% during this period.

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Is oil’s rise purely based on the supply deficit?

The correlations indicate an inverse relationship between oil and these US equity indexes on March 14–21. So far in March, US crude oil had a mild negative correlation with the S&P 500 Index. The recent rise in oil prices was due to OPEC’s agreed supply cut. Between November and February, OPEC’s total production fell by 1.8 MMbpd (million barrels per day).

The US sanctions on Venezuela and Iran have tightened the oil market. According to the International Energy Agency’s Oil Market Report, it expects a supply deficit of 0.5 MMbpd by the second quarter.


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