Feb

8

The Oil Factor, by Craig Mee

February 8, 2007 |

The book titled The Oil Factor outlines a number of key points. Of note moving forward is negative price action. Oil this time last year was trading around 64, now it hovers around 58. If the March and April equities sell off materializes this year, and oil stays relatively flat from here (at least without any major shocks), there looks to be far too many positives not to open up the cupboard and polish up the cane.

When oil rose by 100% or more over a 12-month period, stocks during the next 18 months experienced an average monthly decline of 27%. (Sample period 1973-2003. That is to say, if oil rose by 100% 15 times, then this figure is the average of the percentage decline in the markets of the 18 months for those 15 years.) The smallest decline was 13%. It, too, wasn't straight down. There where times when stocks rose. But the average maximum gain of stocks following 100% rise in oil was only 4%.

Therefore, over 12-month periods where the rise in oil is greater than 100%, results of the following 18 months returns in stocks average are: 27% loss and 4% gain. Further breakdown as follows:

·    50-100% increase in price of oil: average loss 11%, average gain 17%

·    25-50% increase in price of oil; average loss 7%, average gain 25%

·    0-25% increase in price of oil; average loss 3%, average gain 21%

·    Less than 0% increase in price of oil; average loss 1%, average gain 30%


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