Equities and Oil: An Unstable, Regime-Dependent Relationship
Oil remains a key protagonist in financial markets, but what is its relationship with equities? And does it influence European equities more than U.S. equities? To answer these questions, we analyzed the evolution of correlation and beta between these assets over the past 15 years.
Contrary to what current market narratives might suggest, the data indicates that oil is not a primary driver of equity markets. Even in the most favorable periods, Brent has explained no more than 40–42% of the monthly variance of the EuroStoxx, and less than 20% for the S&P 500. In beta terms, before 2022 a +1% move in Brent was associated with a +0.24% move in the EuroStoxx 50; today, it is associated with approximately –0.11%.
In short: oil matters, but it matters less than interest rates, earnings, sentiment, and the broader economic cycle.
Moreover, since 2022 the correlation between oil and equities has become nearly neutral. The turning point was not only the war in Ukraine as a single event, but a broader transition to a new macro regime in which oil is structurally influenced by geopolitics and OPEC policy, rather than primarily driven by global demand.
An analysis of the equity–oil relationship over the past fifteen years highlights a key point: there is no stable or structural correlation between the two variables.
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