While the U.S. stock market has been so quiet lately it looks like it’s fallen asleep, the oil market has been making noise that threatens to interrupt the slumber.
SP 500 Index has gone 40 full trading sessions without rising or falling 1 percent or more, the longest streak of quiet since 1995. Meanwhile, front-month West Texas Intermediate crude has had nine daily moves of at least 1 percent over the same period, including gains of 2 percent and 1.7 percent last week. WTI is fluctuating near $107 a barrel, the highest since September, and Brent crude has risen to about $113.
The VIX gauge of expected stock-market volatility flirted with a record low about a week ago. The VIX’s equivalent for crude, based on options for the U.S. Oil Fund ETF, surged 34 percent last week for its biggest gain in two years as oil jumped more than 4 percent amid concern sectarian violence in Iraq will hurt supplies.
Based on the recent past, stocks may have gotten off easy with only a 0.7 percent retreat in the S&P 500 last week amid that much volatility in oil markets. The S&P 500 slid 3 percent in the week of the last jump in the oil VIX of this magnitude, a 38 percent surge in 2012. The benchmark stocks gauge lost 6.4 percent when the oil VIX surged 41 percent in the first week of May 2010.
While not necessarily the cause of the past economic slumps, surges in oil prices preceded recessions since the 1970’s, as Ed Yardeni, president of Yardeni Research Inc., wrote today.
Read more at: bloomberg.com