Peak Oil Passnotes: Markets Don’t Work Any More

If ever there was a moment when the disconnect between stocks and oil was evident, it was during the downturn in the Dow Jones in the last fortnight. While the equity markets took a serious hit, albeit most likely to be a correction – not a crash, oil carried on firming up and hit $62.

Even those people with a casual acquaintance of the markets should be interested in the way we have seen a multiple change in the way equities and energy inter-react. Normally if stocks went down for a non-energy reason such as panic, the price of energy would follow. The idea is that weaker companies will breed weaker performance, resulting in lower consumption. This is no longer the case.


We also used to see a steep, sharp rise in the price of oil adversely affecting equities. Any oil shock, say, over a war, would mean higher costs passing through to companies, and therefore the market would sell off shares in anticipation of a downturn. Again this is no longer the case. There are several reasons.

Firstly, the market is not logical and those in the know realise this. It no longer sounds convincing to come out with grand resolute theories about the relationship between energy and equity. Instead technical plays and software are much more reliable, making money off of percentage bets, good old Tony Soprano skimming, placed by a computer. The whole process is far more successful. Time and time again we see software setting the pace and computers have their own logic which only studies the now, not the future or the past.

Resource Investor