Stocks and oil: the strange dance nobody can explain

Stocks and oil: the strange dance nobody can explain

Announcements of a flood of crude from the United Arab Emirates and Russia pointed to a collapse in the price of a barrel. Logic would dictate that stock markets, especially energy-linked ones, would suffer. But what is happening is, to say the least, contradictory. While oil trends downward, several tech indices are hitting all-time highs. Where are investors seeking shelter?

Some analyses point out that the drop in crude does not translate directly into the share prices of sector companies, because investors are betting on oil companies as a long-term business, not on the spot price of a barrel. Others see a disinformation manoeuvre: cross rumours about when and how the market will be flooded sow confusion and fuel volatility. The truth is that the divergence between the behaviour of the index and that of the commodity is so marked that it suggests there is more at play than simple supply and demand expectations.

Meanwhile, a market participant reports that his US tech fund is at record highs and that he has gained several thousand euros over the past month. The devaluation of fiat currencies is mentioned as a possible explanation: as long as money keeps being printed, financial assets can keep rising even if the real economy falters. The question hanging in the air is whether this divorce between stocks and commodities is sustainable or whether it heralds a violent correction.

Uncertainty as the only consensus

The feeling that someone is flooding the market with false or contradictory information reinforces the thesis that we are moving in a dystopian scenario where even a world war would not stop the rallies. Unlimited money printing, geopolitical announcements and the disconnect between macro data and equities form a cocktail that calls for caution.

What will happen when the real supply of crude reaches the market and prices truly fall? For now, the market prefers not to pick a side. And that, in itself, is the most unsettling signal.