Statistical evidence shows that oil demand is highly correlated with the performance of the global economy. In the past, the price of a barrel of oil also closely tracked changes in consumption. To a certain extent, OPEC once acted as both judge and jury of the oil balance, reducing output in times of weak demand and increasing it when demand rose – a delicate balancing act that ensured the market was never oversupplied for a prolonged period.

As a result, during both economic booms (such as China’s emergence on the global stage between 2003 and 2008) and downturns (such as the 2007 – 2008 recession), the relationship between stock indices and oil, as illustrated in the chart above, remained relatively stable. Between 2005 and 2013, for example, one unit of the Nasdaq Index was worth between 30 and 40 barrels of WTI, while for the global equity index, this quotient fluctuated between 3 and 6.

Then came the U.S. shale revolution around 2014 – 2015. OPEC lost much of its pricing power, and the supply-demand balance became increasingly determined by market forces rather than coordinated output policies. In times of oversupply, such as during the Russian-Saudi price war in early 2020, the ratio spiked as oil prices collapsed while the broader economy continued its recovery from the health crisis. The Russian-Ukrainian war triggered a short-lived fear of recession and supply disruption, during which equities temporarily became cheaper relative to oil.

Nonetheless, the underlying trend is clear in the chart: Rising supply from outside the producer alliance prevents the oil balance from tightening meaningfully, regardless of economic conditions or oil demand. As a result, the equity-oil ratio has climbed relentlessly. This effect has been particularly pronounced in the Nasdaq Index, amplified by the spectacular rise of AI-driven technology stocks. Whereas 15 – 20 years ago the ratio stood at 30 – 40, it is now well above 300.

Is this the new status quo, or could reverting to the earlier mean occur over a prolonged period? The change observed over the past decade appears to represent a structural shift in equities, driven by the dominance of technology and largely disconnected from commodity cycles. On the supply side, robust U.S. shale production, rising non-OPEC output, and renewed investment in exploration and production – spurred by the slower-than-expected transition from fossil fuels to renewables – suggest that the divergence between equities and oil, notwithstanding occasional brief corrections, such as the one experienced in tech stocks at the time of writing around August 20, will continue unabated.